By David Rogers. August 15, 2016. BLOWING ROCK, NC — The vast majority of markets continue to trend upward into intermediate-term “overbought” levels, increasing short-term risk to new long positions, if established, and making those markets vulnerable to at least short-term price corrections. It is important to remember that market corrections materialize in some combination of two basic patterns: harsh price decline on the extreme or sideways consolidation. All issues covered in this report focus on the trading of exchange-traded funds (ETFs) that generally are comprised of a well-diversified equity portfolio in a specific industry, or reflect the price movements of a specific market index.
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GOLD MINING (Market Vectors, Symbol: GDX, Aug. 12 close — $31.05)
As with other mining related or precious metals markets, GDX is not only showing overbought levels in various momentum studies (weekly charts), but doing so with non-confirmations in our Blowing Rock News (BRN) Time Flex studies. This condition has persisted for a couple of weeks now with the non-confirmation conditions actually worsening as price struggled modestly higher. The dotted white line in the chart is the net price level at which we have established trading short positions, which are modestly against us at the moment. Our BRN Time Flex study remains in corrective mode, so we’ll continue to give this a chance to work out. Price has worked under the rising Hull 20-Week Moving Average, which improves probability for at least a short-term trend reversal.
SILVER (iShares Silver Trust, Symbol: SLV, Aug. 12 close — $18.72)
We are a little bit ahead in our model trading account short position in SLV and, similar to other metals and mining related ETFs, price in our weekly charts have started to trade under our Hull 20-week Moving Average. This is occurring while price has popped into the heart of a long pattern of sideways consolidation etched out between May 2013 and September 2014, before breaking down. Since rallying off the late December 2015 lows, the price rallies have been relatively robust, but that earlier sideways pattern now represents congestion area resistance where there will be at least a modest supply of shares. And, as has happened over the last few weeks, that supply has blunted the recent uptrend. In our opinion, SLV could benefit from more pullback, but since there was no non-confirmation in our BRN Time Flex study we’ll look to cover the short position when and if the Time Flex study trades back to zero (green circle in our indicator chart, at bottom).
METALS & MINING (SPDRs S&P Metals & Mining, Symbol: XME, Aug. 12 close — $27.34)
Our short positions (average price = $28.75) are now modestly profitable and XME is now trading below our Hull 20-week Moving Average, perhaps trying to turn that average down. The XME advance appears to be slowed down by the small area of congestion area resistance etched out in early 2015. Price looks ever more vulnerable because of the non-confirmation presently appearing in our BRN Time Flex studies. We’ll reconsider our short position if and when price trades back above the Hull 20-week MA and our current-level Time Flex study pokes above its front-weighted 5-week MA.
UTILITIES (SPDRs Select Sector Utilities, Symbol: XLU, Aug. 12 close — $50.90)
With our BRN Time Flex study poking below the indicator’s zero line, we are tempted to cover the short position (avg. price @ $51.92), but given the non-confirmation that occurred in this key indicator at the recent highs, we’ll give the indicator a chance to reach oversold at -0.50. There is a measure of support for XLU price just under $50 because of the double top pattern that it finally broke out of there. We’ll reconsider our short position if price trades back above our Hull 20-week Moving Average.
Keep in mind that utility companies, generally, sport higher cash dividend streams to long equity investors than typical “growth” oriented, publicly-traded stocks. So a portfolio comprised primarily of utility stocks will be buoyed in a period of declining interest rates (which makes the utility dividend income more attractive), but in a period of rising interest rates those utility stocks will come under attack unless the subject companies continue raising their dividends.
BRAZIL (iShares MSCI Brazil Index Fund, Symbol: EWZ, Aug. 12 close — $34.46)
The honeymoon that has been the Olympic Games was brought down to earth early Sunday morning when four American swimmers, including medalist Ryan Lochte, were robbed at gunpoint by thieves posing as police officers. This underscores the harsh reality that there are problems in Brazil, from corruption in government, to real law enforcement officers not getting paid, to pollution, and of course the Zika virus, among other things. While many of the problems have been camouflaged by a reasonably well-run and highly entertaining Olympics, price has run up into the heart of congestion area resistance (blue rectangle in the price chart) while our BRN Time Flex study is at extreme overbought levels. We look to “average up” in our intermediate-term short position, calculating that as the Rio games wind down the enthusiasm for Brazil will also moderate.
This report is for information purposes only. Nothing about the information contained herein should be construed as a buy or sell recommendation. Any such purchase or sale decision by an investor or trader should be made in concert with an investment advisor, tax professional, and/or legal counsel while evaluating any investor’s tolerance for risk, investment experience, investment knowledge, and available resources, among other important considerations. Past performance is neither a guarantee nor an indication of future profits or losses.