When a market is in runaway mode and refuses to pull back, most investors think “I am not buying at this level, I’ll just wait for a pullback”. That pullback will eventually come, but sometimes after a multi-month advance. This is why we find it much easier to focus on leadership stocks rather than the major averages in a trending market. As long as there is rotation among leadership, with new breakouts emerging, the market will continue to push higher (averages must also avoid distribution).Since the false breakout action on Jan. 15, Global X InterBolsa FTSE Colombia20 ($GXG) has pulled back to and held support of the 20-day EMA, while setting a higher swing low.
In the ETF portfolio, we tightened up stops on a few positions to reduce risk. We raised the stop in $XHB to protect gains, while the $RWO stop was moved to just below the two-day low to guard against a false breakout. $KOL continues to slide lower and it looks like the 50-day MA is our last line of defense.We are not looking to add more long setups to the official watchlist, so today’s report we will cover a few ETFs that are consolidating near the highs and need a few more weeks of basing action to provide us with reliable entries.The iShares FTSE/Xinhua China 25 Index ($FXI) is consolidating in a tight range near the highs of the last wave up, but it’s a bit too early in the base to begin buying, as we would like to see the price action establish one or two higher lows within the base.
$RWO finally got going last week along with $RSX, which broke out on Friday by clearing the high of the handle at 30.73. $EWT needs to hold on to the swing low of December 21 to continue producing higher swing lows along the base. $KOL failed to hold above the low of January 16, so we could see a test of the 50-day moving average within the next few days. We definitely do not want to see the price action fail at the 50-day MA.We have one new official setup added to today’s watchlist in $EWS – iShares MSCI Singapore Index Fund. The weekly chart below shows the tight price action over the past six weeks above 13.50.
Stocks turned in a round of mixed results yesterday, as the Dow Jones Industrial Average gained 0.3%, the Nasdaq Composite fell 0.7%, and the benchmark S&P 500 was flat. However, higher volume across the board means the Nasdaq suffered a “distribution day,” and price action of the S&P 500 was indicative of bearish “churning” (stealth institutional selling into strength). A big part of the blame was that shares of Apple ($AAPL), a heavily weighted component of the NASDAQ, plunged 12% yesterday. Nevertheless, the broad market fared relatively well considering the anchor effect of Apple. Although the Nasdaq failed the previous day’s breakout and closed at its intraday low, it was only the first confirmed “distribution day” the Nasdaq has suffered since its breakout in the beginning of the year.Yesterday’s price and volume action produced the first true distribution day in the Nasdaq Composite since the big gap up. While we have seen a few weak distribution days since the gap up (price action closed well off the lows of the day), Thursday’s price action closed near the lows of the day.
We had a busy day in the ETF portfolio, with $KBE, $RSX, and $KOL triggering long entries. We do not plan on adding new long positions unless a winner is sold or we sell a slower moving position to make room for a potential breakout. However, we do plan on adding to existing positions ($RSX and $EWT) should they move higher.The iShares FTSE/Xinhua China 25 Index ($FXI) is consolidating near the highs of the last move. Ideally, we would love to see some sort of false breakout action, followed by a selloff to the rising 20-day EMA somewhere around 41.00. Whether it continues to hold near 42.00 or pullback, we feel that $FXI needs another week of sideways action to produce a decent base. It is only 13 days into its current base, and we prefer to see at least 15 to 20 days of basing action before a breakout.
In last week’s commentary we mentioned that the Market Vectors-Coal ($KOL) could potentially find support on a pullback to the rising 20-day EMA and 200-day MA around 25.50. This support level looks like it wants to hold, and if it does, will create another higher swing low on the right side of the base. As we have mentioned in past reports, the price action should make higher swing lows within the base, along with a tightening of the price action. Our buy entry in $KOL is over Friday’s high. We are placing a protective stop beneath the prior swing low from last December.
$KBE hit our buy stop within the first 5-minutes of trading, so we held off on the entry. The price failed to break above the 5-minute high (plus 10 cents) the rest of the day, so a long position was not initiated. For those who were triggered on the open, continue to hold $KBE with the stop posted in today’s report. For those who did not enter, we have a new buy point listed in the watchlist section above.The Market Vector Russia ETF ($RSX) is currently forming a tight ranged (cup and handle like) base on the weekly chart below. $RSX rallied about 30% off the lows before pulling back and successfully testing the downtrend line and forming the right side of the pattern.
The weekly chart of the SPDR KBW Bank ($KBE) shows a tightening of the price action since March of last year. Note how the distance from each swing high to swing low tightened up. This is the type of action that we look for in all consolidations, regardless if it is a weekly, daily, or intraday chart. The recent breakout above $24.75 is a buy signal.
Since the beginning of the year, we have seen great resilience in the market (weak open & strong close), along with breakouts holding and new breakouts emerging. While the market has struggled to make much progress, conditions are improving and that is a good sign.After reversing back above the 50-day MA from a large gap up on January 2, iShares NASDAQ Biotechnology Index ($IBB) rallied to the prior highs of October before pulling back in for a few days. Tuesday’s price action undercut a three-day low before reversing and closing near the highs of the day. The reversal action and strong close formed a bullish reversal candle on the daily chart below
$GXG triggered a buy entry for us on the open, however; the price action failed to follow through and closed near the lows of the day. The lack of follow through was disappointing, but as long as the action holds above the 20-day EMA we could see buyers return later in the week. There are no new setups today, but the $EWT setup remains on the watchlist.The chart below details our buy entry and new target in the iShares MSCI All Peru Capped ($EPU). We bought $EPU on the breakout above the range high at 45.62. The price action continues to push higher, and we are looking for a move to the 49.40 level as the official target.