MID CAPS AND LARGE TECHS SHOW RELATIVE STRENGTH -- DR HORTON AND LENNAR LEAD ITB SUPPORT BOUNCE -- BIOTECHS SHOW BROAD STRENGTH -- CARZ BREAKS LATE DECEMBER HIGH -- TOYOTA AND DAIMLER LEAD -- GM HITS SUPPORT ZONE AS F CONSOLIDATES

MID CAPS AND LARGE TECHS SHOW RELATIVE STRENGTH ... Link for today's video. The S&P MidCap SPDR (MDY) and the Nasdaq 100 ETF (QQQ) are starting to show relative strength, but in two different ways. Chart 1 shows QQQ with a breakout in late October and new highs in November. The ETF pulled back in December-January with broken resistance holding. This means the ETF consolidated above the breakout, which is bullish. After a piercing pattern in mid January, QQQ followed through with a surge off support. A breakout at 105 would signal a continuation of the October-November advance. Note that Microsoft reports after the close today and Apple reports tomorrow after the close. As far as relative strength is concerned, the indicator window shows the price relative (QQQ:SPY ratio) flattening out from late December to mid January and then breaking out last week. This means QQQ is starting to outperform SPY again.

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Chart 1

Chart 2 shows MDY bouncing off the 251-255 area to establish support here in mid December and January. A triangle formed the last six weeks and the ETF broke above the upper trend line with a surge last week. The big trend is up because of the 52-week high in late December and this triangle breakout signals a continuation of that trend. The indicator window shows SPY for comparison. Notice that MDY closed above its early January closing higher, but SPY did not. The higher high in MDY means it is showing relative "chart" strength.

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Chart 2

DR HORTON AND LENNAR LEAD ITB SUPPORT BOUNCE... Chart 3 shows the Home Construction iShares (ITB) getting hit hard in mid January, but firming in the 24.5 area and bouncing back above 25 this week. John Murphy showed ITB bouncing off its 200-day moving average on Wednesday and it got some help today from DR Horton, which also surged off a support zone. The bounce in ITB affirms support in the 24 area and keeps the bigger uptrend alive. I think the bigger trend is up because ITB broke out in November and hit a 52-week high in early January. Admittedly, the group is not as homogenous as it once was. KBH plunged in mid January and NVR is down sharply today, but DR Horton (DHI) and Lennar (LEN) are picking up the slack. The latter two are the most important components because together they account for over 20% of ITB. Despite construction charts from Lennar (LEN) and DHI, the mixed performance from homebuilders as a whole could lead to choppy trading in ITB. Chart 4 shows DHI finding support from broken resistance, the late October consolidation and the 50-62% retracement zone. Chart 5 shows LEN with a similar chart pattern.

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Chart 3

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Chart 4

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Chart 5

BIOTECHS SHOW BROAD STRENGTH ... Relative strength in biotechs was a theme throughout 2014 and this theme continues into 2015. Chart 6 shows the Biotech iShares (IBB) breaking triangle resistance at the beginning of January and advancing to new highs the last two weeks. Broken resistance marks first support in the 308 area and the November-December lows mark key support in the 285-295 area. The indicator window shows the price relative (IBB:SPY ratio) in an uptrend and hitting a new high again this month.

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Chart 6

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Chart 7

Chart 7 shows the Biotech SPDR (XBI) breaking out to new highs in early January, consolidating with a bull flag and breaking out today. When looking at these two charts, notice the difference in the holdings. IBB is dominated by the big biotechs with the top ten stocks accounting for 56.1% of the ETF. XBI, on the other hand, has over 80 biotech stocks and the top ten account for around 16%. XBI is much broader and the new high in this ETF reflects broad strength in the industry group.

CARZ BREAKS LATE DECEMBER HIGH... Chart 8 shows the Global Auto ETF (CARZ) perking up in January with a wedge breakout and move above the late December high. Technically, this ETF is in a downtrend overall because it peaked way back in July and hit a new low in mid October. I am, however, intrigued because the ETF formed a higher low in early January and broke out. Notice that CARZ corrected with a falling wedge that retraced around 62% of the prior advance. The retracement amount and pattern are typical for corrections within bigger uptrend. This breakout signals a continuation of the prior advance (mid October to early December) and we could see a move above the early December high. Support is marked in the 36.5 to 37 area and a close below 36.5 would warrant a reassessment. The indicator window shows SPY still below its late December high. CARZ is above this high and, therefore, showing relative chart strength. I realize that this ETF is thinly traded, but chartists can still use it to analyze the global auto industry.

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Chart 8

TOYOTA AND DAIMLER LEAD... As you can see from the components list on the chart, the Global Auto ETF (CARZ) is truly global with Toyota, Daimler, Honda, GM and Ford accounting for over forty percent of the ETF. Chart 9 shows Toyota (TM) breaking triangle resistance in mid January and hitting a new 52-week high last week. Chart 10 shows Daimler (DAAIF) breaking above resistance in mid January and surging above 90 today.

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Chart 9

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Chart 10

GM HITS SUPPORT ZONE AS F CONSOLIDATES... Chart 11 shows GM breaking above its December high with a surge above 36 in early January, but falling back rather sharply in mid January. The stock is at a potential support zone marked by broken resistance and the 50-62% retracement zone. The stock consolidated the last six days and chartists can watch this range for the next directional signal.

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Chart 11

Chart 12 shows Ford (F) with a triangle and a narrowing range over the last six weeks. The Bollinger Bands are shown in pink and they are contracting. This volatility contraction means Ford could be gearing up for a volatility expansion. But which way? Bollinger Bands do not give us directional clues so we much watch the chart for the next direction break. I am marking resistance at 15.5 and support at 14.50, and Ford is right in the middle. Note that Ford reports earnings on 29-Jan, Toyota on 3-Feb, GM on 4-Feb and Daimler on 5-Feb.

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Chart 12

GOLD HITS BIG RESISTANCE ZONE... Gold is certainly off to a great start in 2015, but the bigger trend is down and I think resistance is at hand. Chart 13 shows Spot Gold ($GOLD) breaking down in early 2013 with a move below 1500, consolidating around 1300 for a year and then breaking to another 52-week low in late 2014. The most recent break did not last long as gold surged back above 1200 at the beginning of the year. A failed support break is positive, but it is not enough to change the overall downtrend, which is down because of the 52-week low. Furthermore, I think resistance is at hand because the 1300 area marks the middle of a one year consolidation.

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Chart 13

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