Are Small Caps About To Come Alive?

• Watch those small caps
• Dr. Copper about to get better?
• Wheat enters a primary bull market
• The yen is getting close to a downside breakout
• Gold is close to a breakdown

Watch those small caps

Chart 1 features the iShares Russell 2000 ETF, the IWM, together with its relative strength line against the S&P Composite. Both series are above their respective 65-week EMA’s, as are the long-term KSTs for the absolute and relative prices. Last November these two series surpassed major resistance trendlines. This was followed by an advance, especially in relative action, but since late last year, the price has been more or less flat,  and the RS line in retreat. What’s significant about the chart is that the period of under-performance that began late last year seems to be over. That’s because the RS line has just broken above the green down trendline marking the top of the corrective mode.

Chart 1

Chart 2 shows things in greater detail. The price itself has not yet broken out, but is extremely close to doing so. There is a good chance that it will, because the short-term KST is marginally bullish and is being supported by the RS line breakout as well as a positive KST for relative action.

Chart 2

Dr. Copper about to get better?

Chart 3 shows that the Copper price peaked a few years ago, sold off and bottomed at the start of 2016. It is currently above its 65-week EMA and is therefore in an uptrend. However, the price action since late last year has been distinctly range bound. That trading range could be the right shoulder of a reverse head and shoulders formation. A decisive upside breakout would come with a Friday close above the potential neckline, say at $2.80.  Right now both the long- and short-term KSTs are in a positive mode, so a breakout is certainly possible.

Chart 3

Wheat enters a primary bull market

Chart 4 shows that the price of wheat has recently been exploding, to the extent that it is now well above its 12-month MA and the long-term KST is bullish. It’s obviously over extended on a short-term basis, but since it has also violated its 2012-17 down trendline and the 12-month MA has reversed to the upside, ultimately higher prices seem likely.

Chart 4

Chart 5 shows that at major turning points it is normal for both wheat and corn to reverse more or less simultaneously. However, if either of these grains have leading tendencies the arrows show that that role is more likely to come from wheat. Recent strong wheat action may therefore turn out to be a portent of wider strength for grains as a whole.

Chart 5

The Yen is getting close to a downside breakout

The Dollar Index has recently been falling like a stone, but under the surface, the Japanese Yen has been even weaker. Chart 6 shows that the currency could be in the terminal phase of completing an upward sloping head and shoulders. That would happen with a decisive Friday close below 87. The long-term KST is already bearish, but the flat nature of its recent action continues to point to a very finely balanced situation between buyers and sellers. That’s also evident from the intermediate KST. One point of weakness comes from the slight violation of the dashed red up trendline, which means that the smaller head and shoulder has been completed. Since this chart is based on Friday closes, and the late plot is for a Monday, we cannot say that this formation has  been completed for sure.

Chart 6

However, Chart 7, which features the daily action, shows that a Yen break has actually happened, and that this trendline violation is being supported by a bearish daily KST.

It’s always possible that the break will turn out to be false, as the Yen reverses to the upside with a violation of the green down trendline in Chart 6. As it stands right now though, things are not looking that positive for the Japanese currency.

Chart 7

Gold is close to a breakdown

Chart 8 featuring the Gold price, has several elements of the Yen in it, the 2015-17 intact up trendline, the tentative 2017 head and shoulder breakdown and the very finely balanced KST situation. For Gold though, things look slightly worse, since all three KSTs have started to roll over to the downside.

Chart 8

Moreover, Chart 9 tells us that the Gold price has broken down from a top. We can’t call it a head and shoulder because June’s high was above that of April. It really does not matter, as the break indicates that the buyer/seller battle has been won by the sellers. Note that the price has also dropped below the 200-day MA. The one bullish characteristic lies in the fact that the break took place through a gap lower opening. Gaps are emotional states of affairs and are almost always eventually closed, or an attempt to do so is made. That means that there is a possibility that during any gap closing attempt, the price will be able to rally above its 200-day MA and green down trendline.  That’s really woulda-coulda-shoulda stuff, because as things stand right now, the break is for real and lower gold prices are expected.

Chart 9

Good luck and good charting,
Martin J. Pring

The views expressed in this article are those of the author and do not necessarily reflect the position or opinion of Pring Turner Capital Group of Walnut Creek or its affiliates.