-- STEADY UPTREND FOR LARGE-CAPS, NEW UPTREND FOR SMALL-CAPS, XLE FIRMS, MEDIA ETF BREAKS OUT, CLOUD COMPUTING ETF LEADS, FDN BREAKS OUT, SOCL PERKS UP, REGIONAL BANK ETF HOLDS UP, SOLAR ETF BREAKS FREE, PLUS REM, IYZ AND PSCF --
A MOST STEADY UPTREND FOR LARGE-CAPS... Link for today's video. There is definitely a lot of noise out there on a daily basis, but the uptrends in the S&P 500 SPDR (SPY) and Nasdaq 100 ETF (QQQ) are remarkably steady on the weekly charts. Chart 1 shows QQQ with a steady progression of higher highs and higher lows since November 2012. There have been just four corrections of 5 percent or more (high to low) along the way. The October correction was the deepest, but only amounted to a 10% pullback if measured from the mid September high to the mid October low. The ETF hit a new high just three weeks ago and is trading within spitting distance of this high right now. Anything trading this close to a new high must be in an uptrend. The Raff Regression Channel and December-January lows mark the support in the 98-100 area.
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Chart 1
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Chart 2
Chart 2 shows SPY with a clear uptrend over the last three years. The ETF broke out above 200 in late October and this area turned into support as the ETF consolidated into early February. The advance resumed with a surge to new highs in March and there is nothing but uptrend on this price chart. The Raff Regression Channel, rising 52-week moving average and December-February lows mark a support zone in the 195-200 area. Even though the advance slowed over the last few months, I see no reason to be bearish and do not see a major topping pattern. I will, therefore, treat pullbacks as corrections within an uptrend until this support zone is broken. The indicator window shows RSI in a bull zone (40-80) for over three years.
A RENEWED LONG-TERM UPTREND FOR SMALL-CAPS... After going nowhere for most of 2014, the Russell 2000 iShares (IWM) and the Russell MicroCap iShares (IWC) sport major breakouts on the weekly charts and these breakouts signal a resumption of the 2013 advances. Chart 3 shows IWM advancing from the low 70s to the 115 area and then trading flat the first nine months of 2014. IWM surged in October, hit a 52-week high in late December and surged again to new highs in February-March. This weekly chart puts the breakout into perspective and it looks very very bullish. Basically, IWM surged for 12-14 months, consolidated for almost all of 2014 and broke out to signal a resumption of the prior advance. I am not going to give a price target or timeframe, but as a continuation of the 2013 advance, the projection is for much higher prices in the coming months. In addition to a bullish chart, the indicator window shows the price relative (IWM:OEF ratio) turning up in early October and hitting an eight month high. Small-caps show relative strength and this further supports the breakout.
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Chart 3
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Chart 4
Moving further down the market cap scale, chart 4 shows the Russell MicroCap iShares with an extended advance in 2013, a new high in early 2014, a correction into October and a breakout at the end of 2014. As with IWM, this breakout signals a continuation of the prior advance and targets higher prices in the coming months. The December-February lows mark key support in the 72.5 area. The trend is clearly up as long as these lows hold and we should trade accordingly.
XLE FIRMS WITHIN DOWNTREND... In general, I favor continuation moves over reversals and this is why I am not interested in the energy, commodity and mining related industry group ETFs right now (XLE, XES, XME, GDX, COPX). The Energy SPDR (XLE), for example, may indeed be forming a triple bottom over the last four months, but the bigger trend (right now) is down and this means the path of least resistance is down. Chart 3 shows XLE with a massive head-and-shoulders and a neckline support break in December. This broken support zone turned into a resistance zone and held in January-February. XLE got a nice bounce off support last week, but this bounce is not enough to affect the long-term downtrend. At this point, I view the trading range since December as a consolidation within a bigger downtrend, which makes it a rest within the downtrend.
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Chart 5
ANATOMY OF A CONTINUATION MOVE... There are several industry group ETFs that show an advance-consolidation-breakout sequence on the weekly charts, and this sequence is all about the continuation of a trend. Basically, there is a strong and extended advance followed by some sort of correction, which can be a falling channel, a falling wedge or a flat trading range. A correction represents a rest within a bigger uptrend and a breakout signals a resumption of that uptrend. The next charts are weekly charts so these breakouts should be valid for a few months. Even if you are not interested in the ETF itself, these industry group ETFs tell us which industry groups are strong and chartists can use this information to narrow their watch-list for stocks. For example, the table below shows some top stocks in the Internet ETF (FDN), which sports a fresh breakout and relative strength. Chartists can go to the ETF provider's website for information on the holdings.
Chart 6
SKYY, FDN AND SOCL SHOW LEADERSHIP THIS YEAR... Chart 7 shows the Cloud Computing ETF (SKYY) with an extended advance from November 2012 to February 2014 and a flat consolidation throughout most of 2014. The ETF broke out in December, fell back, and then resumed its breakout in February. This chart is long-term bullish and the stocks in SKYY will be on my watch-list for bullish setups. Perhaps some of these will be featured in Tuesday's webinar. As with several ETFs and stocks, the December-February lows can be used to mark support in the 27 area.
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Chart 7
The indicator window shows the 26-week Slope, which measures the slope of a 26-week linear regression. The Raff Regression Channel on the price chart extends 26 weeks and the middle line is a linear regression, which is the line of best fit for this period. The slope quantifies the rise over run (slope) for this line. A positive slope means the linear regression is rising and the 26-week trend is up.
Chart 8 shows the Internet ETF (FDN) with a new high in early March 2014, an 11 month triangle consolidation and a big breakout in February.
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Chart 8
Chart 9 shows the Social Media Global ETF (SOCL) coming to life with a big surge last week. SOCL is not as strong as FDN, but the chart shows promise with a break above the triangle trend line and a new high for 2015. Yes, it is just a few months, but SOCL shows relative chart strength in 2015 because it is near its high for the year to date. In fact, chartists looking for stocks or ETFs showing relative strength should run a scan looking for symbols trading at 54 day highs (there are 54 trading days so far in 2015).
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Chart 9
MEDIA ETF BREAKS OUT TO NEW HIGHS... Chart 10 shows the Media ETF (PBS) with an extended advance throughout 2013, a falling wedge correction throughout most of 2014 and a breakout at the end of 2014. The ETF surged in February and hit a new high this week. The wedge breakout signaled a continuation of the prior advance, which was 13 months and over 50%. I am not going to project another 13 month advance and 50% gain, but I will assume that the path of least resistance is up and favor long positions. In other words, the trends on these weekly charts set my trading bias for the daily charts. The lows from the December-January consolidation mark support in the 24 area.
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Chart 10
REGIONAL BANK SPDR MAINTAINS UPTREND... Now we are going to turn toward the finance group, which is a tough call because of recent volatility in Treasury yields. Chart 11 shows the Regional Bank SPDR (KRE) hitting an eleven month high, which means it is close to hitting a 52-week high. A push above 42 would be enough to exceed the March 2014 highs and put the ETF in clear breakout mode. I think the cup is still half full for this ETF because it forged a higher low in January and edged above the December high in March. This means prices are trending higher and this favors a 52-week high in the coming weeks.
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Chart 11
SMALLCAP FINANCIALS ETF LEADS WITH NEW HIGH... I am also seeing positive price action in the SmallCap Financials ETF (PSCF) because it hit a 52-week high last week. Chart 12 shows PSCF with a surge throughout 2013, a big ascending triangle in 2014 and a breakout in October. Even though the ETF has not moved much since early November, the breakout held and remains bullish until proven otherwise. The December-February lows mark first support in the 39 area. Chart 13 shows the Mortgage REIT ETF (REM) springing to life with a breakout and new high for 2015.
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Chart 12
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Chart 13
SOLAR ETF BREAKS OUT OF MASSIVE WEDGE... Chart 14 shows the Solar Energy ETF (TAN with a massive move in 2015 and a break above the falling wedge trend line. The ETF is up some 35% from its January lows and this move looks explosive. Greg Schnell deserves a shout out because he was out in front of this one with his series on solar stocks in December last year. TAN is obviously a volatile and risky ETF so I would not be chasing. It is, however, on my bullish radar now for pullbacks and bullish continuation patterns on the daily chart.
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Chart 14
TELECOM ISHARES CONFIRMS CONTINUATION PATTERN... And finally, we will go from the very volatile to the not-so-volatile and look at the Telecom iShares (IYZ). Chart 15 shows this ETF working its way higher from November 2012 to September 2014, almost two years. Trading turned choppy the last three months of 2014, but the overall pattern looks like a large consolidation within an uptrend. It could even be an ascending triangle, which is a bullish continuation pattern. The ETF broke to new highs this week and this signals a continuation higher. Note that I am ignoring the late July spike to 32 and calling this a new high for all intents and purposes. Technical analysis is a bit art and a bit science so I am exercising a little artistic freedom here.
