DIA BREAKS TRIANGLE TREND LINE -- EQUAL-WEIGHT S&P 500 ETF TESTS KEY LEVEL -- FIVE SECTOR ETFS WITH REVERSAL PATTERNS -- BPI HITS MOMENT-OF-TRUTH FOR GOLD MINERS ETF -- GOLD TESTS BREAKOUT WITH A THROWBACK
DIA BREAKS TRIANGLE TREND LINE... Link for today's video. Stocks came under selling pressure last week as the major index ETFs gapped down on Tuesday and stayed down. Chart 1 shows the Dow SPDR (DIA) gapping below 175 and closing below the lower trend line of a triangle. Even though support from broken resistance and the mid December low is at hand in the 170-172 area, the gap and trend line break dominate the landscape right now. As long as these two bearish developments remain in play, the correction looks set to extend and there are three ways to mark a downside target. First, chartists can extend a parallel trend line down from the triangle low. Second, chartists can measure the height of the triangle and project this decline from the trend line break. Third, chartists can use the Fibonacci Retracements Tool to mark key retracements. With all three in place on this chart, the downside projection is in the 163-166 area. I will use last Tuesday's high and the gap to mark resistance in the 175-176 area. A breakout here is needed to reassess this negative outlook.
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Chart 1
EQUAL-WEIGHT S&P 500 ETF TESTS KEY LEVEL... With a sharp decline over the last few days, it is a good time to revisit the potential head-and-shoulders pattern in the Equal-Weight S&P 500 ETF (RSP). Chart 2 shows RSP stalling out over the last three months with support in the 76.5-77 area. With a decline the last few days, the ETF is poised to test neckline support, a break of which would be negative. I still think this pattern is relatively small (6% or four points) and do not consider it a major reversal pattern. RSP hit 52-week highs in November-December and a pullback is still normal. In fact, a normal 50-62% retracement of the Oct-Dec advance would extend to the 74-75.5 area. The head-and-shoulders pattern, which is still unconfirmed, would target a move to the 72.5 area if confirmed. Keep in mind that these are not "hard" targets and chartists should take projections with a grain of salt (skepticism).
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Chart 2
FIVE SECTOR ETF'S WITH REVERSAL PATTERNS... With the stock market trading flat the last few months, there are lots of triangles, diamonds and head-and-shoulders patterns in play. Overall, I still think the long-term trend for stocks is up because many sector and industry group ETFs hit new highs in December. These consolidations certainly look like bearish reversal patterns, but they are not that big and some are not yet confirmed. Even if confirmed, I would still view any weakness as part of a correction within a larger uptrend. Chart 3 shows the Consumer Discretionary SPDR (XLY) with a possible head-and-shoulders since mid November and neckline support in the 68-69 area. Chart 4 shows the Equal-Weight Consumer Discretionary ETF (RCD) with one as well, but the ETF is not even close to a support test yet.
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Chart 3
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Chart 4
Chart 5 shows the Equal-weight Technology ETF (RYT) breaking support with a sharp decline the last two days. I am using the Raff Regression Channel to define the immediate downtrend or correction. Chart 6 shows the SmallCap Financials ETF (PSCF) testing support with a sharp decline the last few days.
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Chart 5
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Chart 6
Chart 7 shows the SmallCap Technology ETF (PSCT) with a small head-and-shoulders pattern since November and support marked in the 47 area. Chart 8 shows the Networking iShares (IGN) breaking down with a move below the December-January lows. A Raff Regression Channel defines the immediate downtrend with resistance marked in the 36.5 area.
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Chart 7
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Chart 8
BPI HITS MOMENT-OF-TRUTH FOR GOLD MINERS ETF ... Chart 9 shows the Gold Miners ETF (GDX) springing to life with a successful support test in the 17 area and a break above the November high in January. The ETF has since consolidated above this breakout with a small correction that looks like a falling flag or wedge, which is a bullish continuation pattern. An upside break from this wedge would signal a continuation of the Dec-Jan advance. The indicator window shows the Gold Miners Bullish Percent Index ($BPGDM) surging to the 50% level and then stalling the last two weeks. A break above 50% would mean that over half of the stocks in GDX are on P&F buy signals (double top breakouts). Chart 10 shows the Silver Miners ETF (SIL) with a similar setup.
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Chart 9
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Chart 10
GOLD TESTS BREAKOUT WITH A THROWBACK... Chart 11 shows the Gold SPDR (GLD) with a breakout in the 119-120 area in mid January. Even though I think the long-term trend is down, this breakout is a positive development medium-term. GLD fell back last week with a sharp decline on Thursday, but rebounded right away on Friday. This sharp rebound indicates that the decline might be a "throwback" to broken resistance, which turns support. The red lines mark a Raff Regression Channel to define the six day downswing. A follow through move above 124is needed to end this pullback and signal a continuation higher. Chart 12 shows the Silver ETF (SLV) testing the breakout zone in the 16.5 area.
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Chart 11
