Health care sector has been one of the market leaders, but Friday’s action raises an important question of whether sector rotation out of it has started. (BIIB dropped -22% on earnings report). Take a look at the chart of XLV. Friday morning the price gapped down over 1% and selling continued until the close forming a Marubozu candlestick. XLV ended the day below the 50-day average. There is decent support around the $73 area, but should that level give, XLV could easily correct another 4% or so down to the 200-day moving average. 

Bonds (TLT) traditionally do well during the summer month. Combined with a potential sell-off in stocks, it seems that money has been rotating into bonds. TLT gained 2.25% for the week. The important feature of its chart is that it broke out above initial resistance at $120.57. Next important level for TLT to close above would be the 200-day moving average – currently at $123. 

The dollar index ($USD) broke out above resistance last Friday. This week $USD spent time consolidating its gains with a slight pullback. This is very normal for an up-trending security. I think more upside is very likely for the dollar index. This will weigh on commodities of all sorts including precious metals.

        Gold was down over 5% for the week before managing to find support on Friday. Gold is long-term bearish, but may be exhibiting signs of a short-term bottom. There were several hammer-like candlesticks this week and especially Friday’s candle looks like bottoming action is taking place. A rebound to broken support around $1140 is in the cards. 
Gold Chart

GDX was down over 14% for the week, but managed to pullback. GDX is a strongly bearish security, so bottom fishing is notoriously difficult (and fraught with unnecessary risks).

      ...  Having said that, GDX is very oversold on numerous parameters. Momentum oscillators, such as MACD, are at a level where previous rebounds took place. We had a gap down on Monday, which needs filling. Most importantly, however, is the fact that the Bullish Percent index for GDX was at zero today. That’s right, there is now not a single stock within GDX that is on a Point & Figure chart buy signal! During the previous lows in GDX this was one of the more reliable indicators of a bottoming action. 
Live GDX chart with market breadth

GDXJ – the Junior Gold Miners ETF – also had a possible Bullish Engulfing pattern on its chart today. I say possible, because it needs a confirmation soon with prices pushing higher.
Live GDXJ Chart

Strong dollar is weighing on oil as well. $WTIC broke down from a bear-flag formation last week and closed down 5.55% this week. I still have an open short in oil, but did book some profits in the inverse oil ETF (symbol SCO).

Unsurprisingly down trending oil is weighing on energy stocks and countries that export oil. XLE – the Energy ETF - had a bearish breadth momentum oscillator signal in late April and never looked back. XLE just hit a fresh 52-week low. While EWZ – the Brazil ETF – went on our short signal also at the end of April and today hit a multi-year low. 

Finally, it seems that natural gas ($NATGAS) is at a point where another leg down in prices seems likely. On Thursday, we opened a position in DGAZ (inverse natural gas ETF). I am thinking $NATGAS may at least retest the mid-July lows @ $2.64.

That’s it for this week’s market recap,

Best Regards and have another great trading week!

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Minor divergences in the market breadth for $SPX still are present on the charts, but with any more upside, I think these would be worked-off. Similar picture on QQQ: I would like to see the rest of the index catch up to Google, Amazon, Netflix and Facebook. It looks like the big names (FDN) and high momentum (XBI) are pushing higher, while there is some pronounced weakness in the semiconductors sector (XSD). 

After if was all said and done, bonds did not have such a bad week. TLT gained 2.4% for the week and held the critical support for the 3rd time. TLT managed to close above its 50-day moving average. There are still lots of overhead resistance levels, but this is a first step. Again, if the critical support level around $115 is breached, I will treat TLT as a bearish security. For now I still think TLT is weakly bullish.

         

The dollar index also had a very strong week. On Friday $USD managed to close above its mid-May high on a bullish looking candlestick. I think $USD is ready to challenge the recent March and April highs. Should this happen it will weigh on commodities that are already under significant pressure.

Precious metals of all flavors and their miners had some of the worse weeks in many years (Barrick Gold closed at a 24-year low). Gold broke below March low at $1141.60 and touched a 5-year low on Friday, but closed just shy of it at $1132.30. Gold is still not terribly oversold (as compared to other instances when it hit new lows) so more downside is very much possible. Did I mention gold is bearish? 

Not to be outdone, the gold miners ETF – GDX hit an all-time closing low on Friday. GDX broke below its November low to end the week at $15.42. In the past market recap videos I mentioned that the market breadth for GDX was registering new lows BEFORE the ETF itself did so. This was a classic case of a bearish divergence.
GDX is not that oversold according to MACD, but it does appear that the gold miners are approaching some sort of a selling climax (the Bullish Percent Index ($BPGDM) is at only 3.33%) so I would not rule out a short covering rally of some sort in the near term. Again, GDX is a bearish security, so I am not even going to try to pick bottoms, I would rather wait for a rebound to go short again. If/when GDX becomes bullish; I will reverse my thinking and start looking for buying opportunities.
live GDX chart

Several weeks ago we had what appeared to be a bona fide breakouts in the “soft” agricultural commodities. I wanted to see if these breakouts would hold or not. I think many commodities are showing signs of a failure. For example JJG – grains sub-index fund ETN that holds futures contracts for corn, wheat and soybeans – went on our short signal on Thursday. Grains and various agricultural commodities are still in a bear market, and since I generally follow trends and try not to pick bottoms or tops, it makes sense to short JJG at this stage of the game.

That’s it for this week’s market recap,

Best Regards and have another great trading week!

** Special Announcement**

We are close to launching a stocks alert service. Please sign-up for our mailing list to be the first to take advantage of the discounted membership once it becomes available!

 

Alexander Berger (www.MasterChartsTrading.com)