REVIEW OF MAJOR INDEX ETFS (QQQ,SPY,IJR,MDY),HOUSING AND RETAIL SPLIT, BIOTECH ETFS TEST KEY SUPPORT LEVELS, SPOT CRUDE TESTS 2015 LOWS, COPPER AND ALUMINUM HIT MULTI-YEAR LOWS, WEBINAR DETAILS
REVIEW OF MAJOR INDEX ETFS (QQQ,SPY,IJR,MDY)... Click here for the webinar recording. The large-cap index ETFs continue to be tossed and turned within trading ranges, while the small and mid cap index ETFs remain in corrective mode. Chart 1 shows the S&P 500 SPDR (SPY) with the Fibonacci Retracements Tool marking the range from March to August. The midpoint of this range is around 208 and the ETF has crossed this level more than 20 times since early March. Most recently, SPY dipped below 208 on Thursday-Friday and surged back above 208 on Monday. The bigger trend (trajectory) is still up with key support marked in the 204-206 area. A smaller triangle range is taking shape and chartists can watch for a move above 211.5 to trigger a potentially meaningful breakout.
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Chart 1
Chart 2 shows the Nasdaq 100 ETF (QQQ) over this same timeframe (9 months). There is clearly more uptrend on this chart and support is set in the 105-106 area. Short-term, the ETF formed a falling wedge after the mid July surge. This is a corrective pattern, but the immediate trend is down as long as the wedge falls. Look for a move above 113 to break wedge resistance and reverse the short-term downtrend. MDY and IJR will be shown in the webinar. Both are currently correcting and these two ETF represent two thirds of the S&P 1500 (1000 stocks).
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Chart 2
HOUSING AND RETAIL SPLIT... The Home Construction iShares (ITB) and the Retail SPDR (XRT) are going their separate ways and this is splitting the consumer discretionary sector. Housing is one of the strongest parts of the market and retail is one of the weaker parts. Chart 3 shows ITB with a progression of higher lows marked by the green trend line. Even though ITB has yet to clear its March high, the trend is still up and there is no reason for concern as long as support in the 26.5-27 area. Chart 4 shows XRT working its way lower since March. Notice the lower lows in May and late July. Most recently, the ETF broke flag support and this break is holding. I am marking resistance in the 99-100 area. Even though the decline since March is not that steep, I will stay bearish until a close above 100.
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Chart 3
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Chart 4
BIOTECH ETFS TEST KEY SUPPORT LEVELS... The Biotech SPDR (XBI) and Biotech iShares (IBB) fell sharply over the last few weeks and these two are testing important support zones. Chart 5 shows XBI peaking around 270 in mid July and falling over 10% the last few weeks. Broken resistance, the June lows and the December trend line combine to mark uptrend support in the 230-240 area. A close below 230 would break support and argue for a trend reversal. The indicator window shows the three PPOs representing three timeframes. PPO(20,120,1) represents the long-term (red), PPO(10,60,1) represents the medium-term (green) and PPO(5,35,1) represents the short-term (gray). Only one is bearish right now, but the medium-term PPO (10,60,1) is close to turning negative. Chart 6 shows IBB with similar characteristics.
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Chart 5
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Chart 6
Before leaving biotechs, notice the component difference between these two ETFs. Both ETFs have over 100 biotech stocks, but IBB is weighted by market cap and XBI is an equal-weight ETF (for the most part). Notice that the top ten stocks in IBB account for almost 60% of the total weighting. This means chartists should focus on the large-caps biotechs for clues on IBB. The top ten stocks in XBI account for just 14.2%, which means the weightings are more evenly divided.
SPOT CRUDE TESTS 2015 LOWS... The bounce in commodities proved short-lived as most gave back Monday's gains with sharp declines on Tuesday. Note that the downtrends in the next four charts have been ongoing and did not start today. Chart 7 shows the USO Oil Fund (USO) hitting resistance in the 20-22 area in May-June and falling to new lows in July. The bottom chart shows Spot Crude ($WTIC) falling to its January-March lows. The ETF is testing these lows again, but I would not call this a strong support level because the trend is clearly down and prior lows are not expected to hold in a downtrend. Resistance is what really counts in a downtrend. As opposed to support levels, resistance levels ARE expected to hold because they define the downtrend. A break above a resistance zone, therefore, would be an event worth noting. A break to new lows in a downtrend is not a surprise. Chart 8 shows the US Gasoline ETF ($UGA) breaking wedge support in July and this signals a continuation of the downtrend. This bodes ill for energy-related stocks.
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Chart 7
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Chart 8
COPPER AND ALUMINUM HIT MULTI-YEAR LOWS... Chart 9 shows the Copper ETN (JJC) and Spot Copper ($COPPER) in clear downtrends on the three year chart. Both bounced in the first half of the year and broke wedge support in June to signal a continuation lower. Even though copper may seem oversold after a 20% decline in three months, the long-term trend is clearly down and this is the dominant force at work. The May highs mark key resistance. Chart 10 shows the Aluminum ETN (JJU) and the Base Metals ETF (DBB) hitting multi-year lows. Bear markets in this key metals bode ill for stocks associated with industrial metals and mining.
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Chart 9
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Chart 10
WEBINAR DETAILS ... Click here for the webinar recording
