Rally Broadens Further

The rally continues to broaden out, with lagging groups now participating.

Financials and Insurance have been lagging on this move, but they are very important. A move above $54 on Financials (IYF) would be an important turn in the opinion of market. Insurance (KIE) has stalled after breaking out, which is bullish.

Berkshire Hathaway (BRK/B) has been stalled out at old highs for several weeks.

Crude Oil (OIL) has been stuck underneath its 200-day average for the past five months. A break above would tell you that the sentiment has changed from Bearish to Bullish.

Keep in mind that many breakouts fail and these failures often turn into vicious losses over a very short period, so committing money is a process, which requires constant monitoring. But this is the first time stuff has been working like this for many months.

Treasuries have broken bullish symmetry and look to have a deeper correction. That could be the start of money flowing from bonds into stocks, which would be even more bullish.

Some Gold Stocks Consolidating

Gold has been on a tear as the Fed is now printing the Dollar into oblivion. However, while Gold has gone parabolic, many Gold stocks have not followed.

Barrick Gold (ABX) has just broken out of an 11-month base. Harmony Gold (HMY) is trying to do the same.



The “Junior” Gold and Silver stocks have been performing much better than their larger counterparts. Some of this have been the result of M&A activity and some is the result of the larger companies using hedges for future deliveries. As you can see, a lot of the Juniors have stalled out over the past few weeks (similar to the NASDAQ 100).

These are the setups you want to see in leading areas – narrow trading ranges in an uptrend. If prices fail here (like they did in a lot of leading NASDAQ names last week), then I will look for support near the 50-day averages (Black Lines).

Stalled and Consolidating

The NASDAQ 100 (QQQQ) has been the leader. It has now been in a narrow trading range for about 15 trading days. While the index has stalled, many of its key components and leading names have also stalled and consolidated. They are now in a position where the big boys can break them out and run them again or hit them hard. This trading range gives me a chance to manage risk.









There are many other leaders that look very similar.

Growth Leaders Got Hammered

This market has been feast or famine, where things move up quickly and then implode with equal speed. That has made it a very risky market.

Many leaders have stalled out over the past few days and they got hit yesterday on massive volume, causing them to break trendlines and moving averages. William O’Neil (IBD) teaches that massive selloffs on massive volume normally mark the end of a rally.

Cloud Computing
You know when Microsoft wants in that the move is probably over (at least temporarily). Take a look at some of the names related to the space –

F5 Networks (FFIV), Salesforce.com (CRM), VMware (VMW), Citrix (CTXS), NetApp (NTAP)



Apple was hit last week with some massive selling early one day. It was attributed to a “rumor”, but after seeing the pounding some leaders too yesterday, it was probably some real institutional distribution.

Other leaders that got hit hard –

Riverbed (RVBD), TIBCO Software (TIBX), Open Table (OPEN), Red Hat (RHT), Rackspace (RAX), Acme Packet (APKT), CTrip (CTRP) and a whole bunch of others were down 4% or more.

Now obviously, the way the market has been trading lately, these stocks can all recapture all of yesterday’s losses and move to new highs, but yesterday’s action was at least a warning shot and shows you the dangers of buying extended stocks.

All of this damage went on while the Dow and was up some yesterday. The key will be if money flows out of leaders into the less risky stuff. That may mark the second phase of the topping process for the recent rally.

Corn
Here is another example of how much you can get hit if you buy at the wrong time. Corn (ZC Z0) was down over 14% in a week!



Which brings me to Gold (GLD)
Gold has now broken above its uptrend and has now gone parabolic. It did the same thing last November and got crushed. It is either now in a parabolic Bull move like the NASDAQ did in late 1999/ early 2000 or it will soon regress violently back towards the 50-day (Black Line).



After looking at Corn and some of the hot stocks, you can see how potentially risky it is to buy Gold here. There are some Gold Stocks that offer at least a stop loss, like Barrick Gold (ABX) -



This move off the lows has all been about a crashing Dollar. The Dollar is now at some pretty significant support, so a bounce would not surprise me and it would not be good for risky assets. Remember, the S&P is still at significant daily resistance, with timing.

Stalled At Resistance

There was timing last Monday and since then, the S&P 500 (ES Z0-D) has basically stalled out at resistance. It is now in a very narrow 5-day trading range. There is also timing today, so expect this narrow trading range to resolve itself shortly. Key support is the 1133 – 1126 range. If that is broken, then it opens up the potential for a more significant correction.

The move off the August lows is very similar to the July rally. If this is a “two-step” rally pattern, then the potential downside is always 127% of the move, which would be 956 for the S&P 500 (that is how the $1309 target for Gold was devised). I’m not saying that it is going to happen. I am just saying that we are at a key decision and if the market wants to turn lower, this is a logical place and time from which to do so. Don’t just go throwing your money into high-beta stocks, hoping that prices go higher.

There are a number of leaders that are sitting in narrow, multi-day trading ranges. I will list those later today. I was stopped into and out of Oracle in a number of minutes on Friday. I am very nervous about them rolling this thing lower from here, but know what I want to own if they break prices higher.



Gold has gone parabolic. It can pull back to 1296 and still not violate the uptrend. It hit the 1309 target and just keeps grinding higher. There is nothing to do with Gold until it pulls back or goes further into this parabola and sets up a short. There is timing early this week for Gold.



Gold Stocks (GDX) have stalled out in their advance and are now sitting in a 13-day trading range. GDX is also sitting right above the out breakout point of $54. A pullback into the $54 range coupled with a shallow correction in Gold would be ideal.



The “Junior” Gold Stocks (GDXJ) have been trading more like Silver than Gold. There have been some mergers and several Canadian Gold stocks have gone parabolic. You can see the consolidation on GDXJ. It can break either way. I am watching it closely.



US Treasuries (ZB Z0-D) are in an uptrend and have recently held daily support. The ideal technical target (it obviously does not have to be reached) is the 127.2% extension at 137.11 Many of the Bond ETFs have a similar pattern.



Everything still comes down to the crashing US Dollar. You do not see Gold, Stocks and Treasuries all rally at the same time unless it is simply a result of money being printed – which is where we are. What the Yen closely this week to see if they will fight China, who has been intervening to strengthen the Yen and help Chinese exports. The Yen is very stretched.

Weakness at Resistance

The markets were due for a pullback and we may be starting one. This could either be a pause that lets the markets work off overbought technicals or it could be yet another top in this brutal trading range.

The choppy trading range has ground down the confidence of many investors and driven volume down so low that several banks are now making layoffs to offset significant declines in revenue.

There is pretty significant divergence between a handful of leading names and virtually everything else. This is how major tops form. The laggards had better start seeing some buying or…

Here are some key economically-sensitive areas. You can see how they are still stuck in trading ranges –

Metals (XME), Transportation (IYT), Financials (XLF), Homebuilders (XHB). The markets will be much better off if these areas can join the party. A breakout after a shallow multi-day pullback would get me interested.

I will begin to post support levels as the week progresses.





There is leadership. You can see how Latin America (ILF) is trying to break out of a 1-year trading range and South Africa (EZA) has already broken out.

Both of these are heavily focused on resources and benefit greatly from a falling US Dollar. This afternoon, Brazil’s Finance Minister, Guido Mantega, became the first international leader to admit what we all know already –

“We’re in the midst of an international currency war, a general weakening of currency.”

Brazil, South Korea, Japan, Taiwan and several other countries have been buying US Dollars to try and make their own currencies more competitive for international trade. When the US Dollar finally implodes, these countries will have some major social dislocation to deal with, as it becomes competitive for Americans to actually build and manufacture the stuff it consumes…

Hourly Reversal Patterns?

Potential reversal patterns on the hourly charts with the daily charts at time and price resistance.