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The PerfChart below shows the performance for ten currencies since January (year-to-date). The traditional safe-haven currencies are down (Dollar and Yen), while two emerging market currencies are up (Real and Peso). The Euro is also up, which reflects the current risk-on environment for the stock market.
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Hey, the $TSX finally broke above its 200 DMA. Let's enjoy the rally!
What I like is that we finally broke above the 200 DMA with volume. As you can see this area has been resistance in a big way.
Let's list the resistance and check them off as we go past them.
1) 200 DMA - Black line...finally above it.
2) This 50% fibonacci level at 12590 is very important as you can see by the red arrows.
3) There is more resistance around 12750 to 12800. You can see we got turned back there twice before. It was also a support level previously on the chart.
4) The dotted blue lines mark out what is called a bearish wedge. Essentially, as the price moves higher and higher, the range gets narrower and narrower. Eventually it breaks down out of this pattern through the lower blue line and that would be a sell signal.
Should this breakout above the 200 DMA fail, we would use the rising dotted trendline as it gives us a tighter stop.
The rally was meaningful today. Some of the OIl service companies were great today. Obviously Gold caught a bid as well. So did $Copper!
No time to fall asleep here. I have 4 European summits marked on my charts in the last few months. It would appear the agreement isn't anything new today. So should the bond yields start to drop, the USD start to rise, or the Cdn $ start to fall, we would become increasingly worried about the sustainability. That fear exists on every breakout.
One note of caution, the transports had a bad day today. See last weeks article on Dow Theory.
Good Trading,
Greg Schnell, CMT
The Retail SPDR (XRT) hit a new high with a gap last week, but failed to hold this gap as a bearish engulfing pattern formed on Tuesday. Volume also perked up to its highest level in four days. After a rally from 52 to 59, the ETF could correct back to broken resistance in the 53.5 area.
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With all the press centering in upon Gold gains recently +10%, Silver has risen by +19% - thereby outperforming the yellow metal by +9%. Silver - the poor man's good; now looks rather ripe for trading once again. This is as it should be in a metals bull market - silver should always outperform gold. And the manner in which the technicals are shaping up in both absolute and relative terms - we should see both gold and silver move to new highs and not return to the lows forged on 12/30/11 at $1567 and $27.88 respectively.
In our opinion, we shall be playing silver form the long side, for the techncials are rather compelling. First, the weekly Silver chart shows a series of continuation patterns or bullish consolidations that have all lead to new highs. And, each one began with the 20-week stock at oversold levels. In fact, the first two times this occurred, silver rallied for 2-years plus and gained in the multiple of 100%s. Next, let's note the current price has held the 110-week moving average. which it has done on a number of occasions, and then rallied rather strongly. We expect this current test amid the bullish consolidation to take silver price upwards of $50/oz or more - a minimum gain of +34%, which is really rather paltry by past rallies, but one that has the potential to go much much higher.
Therefore, we are left to wonder what shall trigger such buying in the metals and silver in particular. Will be be turmoil in the Middle East? The Euro falling apart? Faster-than-expected economic activity around the world? New rounds of QE? They are all good questions, and perhaps an amalgamation would probably be the most likely scenario.
Energy shares were this week's strongest market sector. That's the first time we've seen relative strength by the energy sector in three months. Chart 1 shows the Energy Sector SPDR (XLE) trading at the highest level in seven months. [A "golden cross" has also been formed by the 50-day average rising above the 200-day (gold circle)]. The line along the bottom is the XLE/SPX ratio, and shows it breaking a three-month down trendline. That's a sign that money is starting to move into this sector more aggressively. Chart 2 shows the Market Vectors Oil Services ETF (OIH) very close to breaking through its 200-day average (red circle). Its relative strength ratio (below chart) is also starting to rise.
It takes time and patience for continuation patterns to play out. Many traders grow frustrated, especially after the stealth move higher ends because of the time involved for continuation patterns to form. The current bull market in gold has lasted more than a decade and there are few technical signs of it ending now. First, let's take a look at a 12 year weekly chart to step back and grasp the overall picture:
You can see from the blue circles above that every "stealth" move higher has been followed by a longer than usual consolidation period. And that makes sense. There needs to be a cleansing period where a whole new group of longs participate as weaker hands let go of their positions. The other technical observation is that the current consolidation phase has allowed a VERY stretched MACD to move back down to test its centerline. This means that gold's 12 week EMA essentially equaled its 26 week EMA. A lot of the overbought conditions have been relieved. Another observation is that every time gold has seen its weekly RSI dip beneath 50 and its weekly stochastic fall to 20 or below, that combination has resulted in a very strong buy signal.
Now let's take a look at the current pattern on a daily chart:
There are a couple of different interpretations which would lead to differing methods of accumulation and risk management. Obviously, we have a bullish wedge breakout, but also have the prospects of an inverse head & shoulders pattern that would measure to 2075 in time. Perhaps an inverse right shoulder will form on a back test of the wedge breakout? Either way, this pattern looks bullish and I'd be a buyer of gold.
I've provided a few technical reasons why I believe gold is going higher. Fundamentally, I believe gold will be higher because Fed Chairman Bernanke wants to inflate our way out of the financial crisis and the resulting economic weakness. The next big issue is going to be inflation, I have no doubt. If you've listened to Bernanke, you know the Fed will do EVERYTHING it can to avoid a deflationary environment. They will continue to expand the Fed's balance sheet. QE 3 is coming so get ready. Ultimately, there will be a price to pay and it's going to come in the form of inflation. What do you think is going to happen to gold prices as inflation is sparked? Inflation may stay historically low for the next couple years, but it is NOT going to remain low. I rest my case.
I'm featuring the GLD as our Chart of the Day for Tuesday, February 21, 2012, where I highlight various entry and exit points to satisfy just about every trader's style. CLICK HERE if you'd like more information.
Ask me what I am bullish about. The XEG.TO got a little life and moved back above the 40 week DMA. As a sign of encouragement, Crude oil broke out of it's trading range. That is helpful as a major commodity. In the USA you can look at XLE for the ~equivalent~ of the XEG.TO. See John Murphy's article today on the energy sector.
Stocks move in cycles. For a bull market, usually the bond market starts to soften, the equity market starts rolling, and then the commodities get going. That is typical. This inter-market relationship has been in place for many years. It must be viewed on the weekly charts.
Continue reading: "$COPPER caught the flu this week...get a doctor!" »
Of the nine sector SPDRs, the Consumer Discretionary SPDR (XLY) and the Technology SPDR (XLK) have the highest StockCharts Technical Rank (SCTR). The SCTR for the Industrials SPDR (XLI) is in a close third. High SCTR scores indicate that these sectors show excellent relative strength and market leadership.
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The first chart shows the Consumer Discretionary SPDR (XLY) breaking above its 2011 highs in January and extending further in February. While the advance is getting overextended, this key sector is by no means weak. Broken resistance turns into the first support zone around 41. The indicator window shows the SCTR plot. In general, the security shows some relative strength when above 50 and some relative weakness when below 50. Notice that this indicator has been above 60 since early October and above 70 since late November. The SCTR is currently at 89, which indicates that this sector shows exceptional relative strength.
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The second chart shows the Technology SPDR breaking resistance from a large inverse head-and-shoulders pattern. Broken resistance turns first support in the 26.50 area. The SCTR moved above 60 in mid September and never looked backed. It has held above 70 since late November and is currently above 90, which makes it the leading sector. You can see all scores on the SCTR table page and read more about SCTR in our ChartSchool.
News headlines are usually more confusing than helpful, especially when trying to determine if stocks are overvalued, fairly valued, ot undervalued. At any given time there will be those who simultaneously claim that stocks overvalued and undervalued. Of course, they all have their own methodologies, which (surprise, surprise) support their point of view.
Apparently the English language has more ways to say the same thing than any other language in the world. I guess we were blessed with Shakespeare or finance guys.
When things repeat, we have many different phrases for them. There is pattern recognition, repetition, cycles, behavioral finance, following the herd, overbought, oversold, breakout, failed breakout, etc. etc.
You can see most descriptions above, in this chart:
RN Elliott back in 1934 found an interesting pattern that repeated in multiple time frames. He would see this as 5 waves in the primary direction and 3 waves in the corrective direction. During some of the corrective phases, the market would make a sideways range bound pattern that he labeled x,y,z. He created exceptions and rules, and found a methodology that is practiced today by Elliott Wave practioners. But more importantly, he found these patterns in all time frames. From the subminuette right up to secular trend.
Continue reading: "Tina Turner - "You Better Be Good to Me"" »
The Gold Miners ETF (GDX) opened weak with a print below 53, but then recovered with a high volume rally and close near 55. Overall, Thursday's long white candlestick engulfed the prior four candlesticks. At the very least, this establishes support with Thursday's low. Follow through would confirm the pattern and argue for a move above the early February high.
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Before explaining the details, note that all the features available on the ChartNotes Annotation Tool can be found on our support page under "How to Use Our Charting Tools". No need to go there just yet because I will explain the process. Keep this in mind to answer future questions.
A shaded area can be created by using the square, circle or triangle features in the drawing tool bar at the top of the Annotations Page. Note that the triangle feature is located behind the square. Here are the steps:
1. Select the appropriate shape with a left mouse click
2. Select a color with a left mouse click
3. Move to the desired chart area and hold the CTRL key
4. Left mouse click and hold that click down
5. Drag to desired size and release to finish
Click this image for a live chart.
This shape can be moved by clicking the shape, holding the click and dragging. This shape can be resized by clicking the shape, clicking the yellow corners, holding the click and dragging. Users can also fill and un-fill the shape by clicking, holding and dragging a corner of the shape while holding the CTRL key. This feature is good for marking support or resistance zones. Note that Mac users would use the "command" key in place of the CTRL key.
Apple is no doubt in a strong uptrend, but the recent move went parabolic as the trendline slope steepened for the third time. The latest surge from 420 to 520 was pretty much straight up. With a high-volume bearish engulfing pattern taking shape on Wednesday, the stock could be ripe for a correction or consolidation.
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After a sharp move lower from late November to early February, the S&P 500 VIX ETN (VXX) bounced the last seven days with its biggest move since November. Volume also surged. It appears that traders are taking out a little insurance with the stock market so overbought.
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One chart for tonight.
THe $TSX is firmly against the resistance of the 200 DMA. A fail here would be significant. Caution is advised.
Remember, the Canadian Dollar, the $TSX, the $SPTEN are heavily influenced by $WTIC,$copper and $HSI.
The $CDW looks weak to me here, the $TSX looks weak here and the energy sector looks weak here.
I don't like copper being down 4 days in a row. $WTIC has some influence from the middle east and $BRENT. When the cold spell in Europe recedes, $BRENT may well recede too. Sometimes $GOLD behaves as a commodity. Especially with a rising $USD. IF that $USD chart is turning up, think about protection..
That red arrow on the right is painfully obvious for technicians.
Good Trading,
Greg Schnell, CMT
The ETF Market Summary shows commodity ETFs under pressure during the day Tuesday. The Coffee (JO) and Sugar (SGG) ETFs were leading the way down. The Copper ETF (CU) and Palladium (PALL) ETFs, which represent industrial metals, were also weak.
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While the market moves higher on Monday, First Solar (FSLR) is moving lower with its second long black candlestick. Also notice that the stock failed at resistance near 50 for the second time in three months.
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Living out in Alberta, I am in the home of ranch country which marks territory for the bulls. To the West is Banff National Park, Waterton National Park and Jasper National Park. All of these parks are home to grizzly bears and black bears. Most days it feels just like the market. Bullish views in one direction and bearish views in another direction. Currently, everyone can find arguments to support their position.
Lets review the first work of intermarket analysis.
Lets talk about the DOW
The DOW doesn't have Apple in it.
The Railroads used to be the comparison. Now we use air, truck, rail, ship to move goods.
Let me cover these off.
From Edwards and Magee. Dow Theory is one of the first tenants of Technical Analysis. From page 14 in an 800 odd page book we get the basic premise of technical analysis. "...the fact remains that most stocks swing together. This fact, as we have said, has long been commonly known and accepted - so completely taken for granted that its importance is usually overlooked. For it is important - tremendously important from many angles in addition to those which come within the province of this volume. One of the best of all reasons for a student of market technics to start with the Dow Theory is because that theory stresses the general market trend." The Dow Theory was set up in January of 1897. 115 years later, we still quote it. It was discovered by Charles Dow. The main theory is : when industrial companies make stuff, they buy commodities and sell finished goods. The interesting part of that is industrial companies need to transport in raw goods and transport out finished goods.So if everything is working in sync, the transports should be improving along with the industrials.
Lets digress for a moment because the Apple is not in the Dow. If Apple was in the Dow, would the index have passed it's recent high? I don't know. Depends what you take out. I do know that the $SPX hasn't made new highs yet and the transports still aren't confirming. From one of the news pages I read, Apple doubled the profits of the SP500 ($SPX) this quarter. Without Apple it was 1.6%, with Apple it was 3.6%. I might have the digits after the decimal place wrong, but Apple doubled the total profits of the other 499 companies. Even with this, the $SPX has not made new highs. The $NDX 100 has, but the $COMPQ is trying to break through right now at the same time as the $SPX.
When the transports do not confirm new highs this creates consternation and needs consideration. Many people disregard the Dow Theory and you may choose to write it off. I just agree that it makes too much common sense and we should always be aware of the simplest tenets of this theory. The transports now include rails, air, trucking which makes this a modification from the original Dow theory which just used the railroads. There could be shipping as well, but the $BDI is on the low end of the chart after falling 30 days in a row. John Murphy recently did a great article so I won't bother with the $BDI.
First lets review the 2007 top.
When the Dow retested the previous highs of July 2007, 4 months had passed.
You can see on the July 2007 high:
The $INDU was trying to make new highs.
The transports were trying to make new highs.
The Industrial metals were making a lower high.
By October,
The $INDU was trying to make new highs.
The $TRAN (the transports) lagged.
The $GYX (The Industrial metals) lagged again.
So it was a clue to be cautious right at that point.
Oil made up 39% of the revised CRB (Revised 2005.) Oil raged on which covered the $CRB and hid crucial data for those not looking deeper. USING THE $CRB WOULD NOT HAVE TOLD YOU WHAT WAS GOING ON.
Once the 40 week moving average had rolled over and starting going lower, The Dow Restested the 200 dma in the spring of 2008 at the blue vertical line. It was a fail. Interestingly enough, at the same time, the Transports retested the October 2007 highs just as the $INDU tested the 200 DMA. Needless to say, both failed from there. The $GYX never got up to retest.
Now let's look at the current chart.
So Let's review where things were at in April 2011.
The $INDU was making a new high.
The $TRAN was making a new high
The $GYX had made a new high recently but had pulled back by the time the red line marking the $INDU high was drawn. Immediately after it pulled back quickly.
Let's look what happened at the right shoulder in July 2011.
The $INDU was not testing the previous high and was unable to break through.It rolled over.
The $TRAN made a new high in June but pulled back by July 18th.
THe $GYX made a lower high and this appeared to be a right shoulder on a head/shoulders top.
The $CRB was masked by crude oil and was steadily making lower lows as oil was.
In this case, the Industrials did not confirm the transports euphoria.
Lets fast forward to now.
The $INDU are testing previous highs. It currently has broken through and pulled back under the highs.
The $TRAN is not confirming the new sentiment.
The $GYX is definitely not confirming the new sentiment.
Crude is still muting the effects of the $CRB for this purpose. Crude moved higher and then went sideways for 3 months now. The $CRB looks like a blend of the $GYX and $WTIC. As it should.
This makes me very cautious. Look at the railway and trucking charts. Below is the trucking chart. $DJUSTK.
You can see it is sitting on the 200 dma on this daily chart. It need upward momentum and it has been declining for 2 weeks while the industrial averages were making higher highs.
Here is the $DJUSRR. This is the railroad index.
The railroads have been declining for 2 weeks, and unable to make new highs for almost a month. More critically, the SPURS line, the purple relative strength line is diving on both charts. This means Hedge funds will start noticing the underperformance.
Here are the airlines...which I think are less relevant to Dow Theory, but still important. $DJUSAR.
Momentum oscillators can be used to identify overbought and oversold conditions in stocks and other securities. However, some momentum oscillators do not reach extremes during strong trends. For example, RSI is a great momentum oscillator, but it does not always reach overbought or oversold levels when used with the default settings (14 periods). Chartists can increase the sensitivity by decreasing the number of periods. 5-period RSI, for example, will reach overbought and oversold levels more often than a 14-period RSI.
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The chart above shows the Nasdaq 100 ETF (QQQ) with RSI(14) never reaching overbought or oversold levels until the second half of January. In contrast, the middle indicator window shows RSI(5) reaching overbought and oversold levels numerous times. Once oversold, a move back above 30 signals an upturn in momentum. Once overbought, a move back below 70 signals a downturn in momentum. After the October surge and breakout, RSI(14) did not become oversold and did not identify corrections. RSI(5), on the other hand, identified two corrections with dips below 30 in November and December. An even shorter timeframe, such a 2 period RSI, would produce even more overbought and oversold readings. Chartists can also use StochRSI(14) to identify corrective periods. This is the Stochastic Oscillator applied to RSI. You can read more about RSI and StochRSI in our ChartSchool.
The chart below shows the S&P 500 ETF with weekly candles and weekly MACD (12,26,9). Even though some signals may seem late, this classic indicator combines trend following and momentum to keep players on the right side of trend. Moves above the signal line favor the bulls, while moves below favor the bears. At the very least, traders should attempt to trade in harmony with this indicator.
Click here for a live chart.
