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ETF Technical Trader, Issue #001 -- teaser here
March 01, 2010

Where we have been, where we are now, and where we are going!

Hello and welcome to the ETF Technical Trader! I said last month that things are changing and they surely have. The trend has potentially changed in most markets. I say potentially because we have had so far only one five-wave move down and the price is now threatening the 1/19/10 high with the move off the 2/5/10 low.

The Treasury Funds have definitely been difficult trying to determine the direction of the price. The treasuries have been choppy for several months and this past month has been no different. I still believe that interest rates are heading higher; however, the markets do not care about what I believe. That is why I use Technical Analysis.

The Financial Funds have broken above the 2/22/10 high, however, as I write this newsletter, it is trading lower has the Major Indexes are trading higher. This is not a good sign. I will discuss in more detail below.

Crude Oil Funds have not broken above the 2/19/10 high as the overall market has. It may not due to various reasons I will discuss below. The pattern has been very choppy of late and makes the Elliott Wave interpretation a little more complicated.

Gold has failed to break above the 2/19/10 high where as Silver has. Gold may break above its 2/19/10 before the day is over. We will have to wait and see.

I hope you have noticed the new format for ETF Technical Analysis. I have made it easier for myself and I hope it is easier for you as well. I have added Country Funds, Currency Funds, Energy Funds, Sector Funds, and split the Financial Funds so that we will now have Treasury Funds all to themselves. I hope this format is better for you and please let me know what you think. Let me know if there is anything else that I need to add or change.

Remember to check out My Blog for current updates. If anything changes or I need to qualify a previous post, I will do so there. I will have links if necessary to take you to a chart and the previous analysis so you can get a full understanding of my analysis and comments. Sign up for the RSS Feed and you will always know when I post to My Blog and have quick access to the charts and analysis.

I will not discuss my analysis of each fund. I will cover only one fund in each category for you to get the main point in direction and potential move for the sector with that one fund. I will use SPY for the analysis of the entire Index Funds. I will use XLF and TLT to cover the Financial Funds. I will use USO for the Oil funds. I will use GLD and SLV for the Gold and Silver Funds respectively. So, let’s get started!

The correction from the March low is complete according to what I said last month. The triple zig-zag is complete and there has never been quadruple zig-zag. Refer back to last month’s newsletter for that discussion.

SPY has had a larger bounce than what I had anticipated. I did not expect more than a 50% retracement. It has now broken above the 61.8% retracement level again. It is now poised to challenge the 78.6% level. The Elliott Wave pattern looks like a double zig-zag with the break of the 2/19/10 high today.

The second zig-zag will have a 5-3-5 wave pattern. When viewing the 15-minute chart, the pattern potentially could be complete with today’s high. Could the price reach higher? Sure, it could move higher; however, it is not necessary with the wave count so far. The 78.6% retracement level is 112.64 and there is horizontal resistance with the lower end of the congestion area of the second week in January at the 113 level. If the price does move higher, expect it to reach either of these levels. The 1/19/10 high is the critical resistance level and if broken, it will alter my interpretation of the wave count. I do not expect this to happen, but you know how that is.

The first signal that the next leg down is underway will be a break below the X-wave of the double zig-zag of the 2/25/10 low. Another signal will be a clear five-wave pattern to the downside. Keep an eye for any of these two for a quick entry for the next leg down. My downside targets are still 102 and 98 for this next leg down and 95 is not out of the question either.

XLF has been in a 2-point range since August 2009. Boring! That may change soon enough. XLF has bounced off the 2/5/10 low as well and has had a higher bounce than what I expected. Like the Major Index Funds, the Financials have broken above the 61.8% retracement level. It also could reach the 78.6% level; however, it is not necessary for the same reasons as the Major Index Funds.

The Treasury Funds has been somewhat of a challenge with the wave count. I have expanded the chart so you can see the larger picture. As you can see, October was the end of the correction of the move from the December 2008 low and the June 2009 High. I have shown two separate 1 and 2 waves, which presupposes an extended third wave. The price actually unexpectedly broke below the 2/5/10 low, which caused me to alter my count. However, it only caused a minor modification.

The wave (ii) correction should be complete or nearly so. The price should move higher from current levels. The 11/30/09 low is now the critical support level. If that level is broken, it will cause more than a minor alteration of the count. As I said, the price should start moving higher soon. I will start being concerned about my interpretation if does not.

If my interpretation is correct, I expect interest rates to move higher at an alarming rate. A break above the 6/10/09 high will cause concern for Wall Street, especially with the speed as to which I anticipate it will happen.

USO has continued to make lower highs and low since October 2009. It also remains below its 233 EMA. The price action was bearish today as there was almost a bearish engulfment. The close actually was actually the same price as it opened with the previous day. It still traded higher than yesterday’s high and sold off hard into the close. This is not good for the price of USO.

I wish I could give you a clear Elliott Wave count, but I will be honest and tell you I cannot see anything at this point. All I can tell you is that the trend is down due to the lower highs and lows. The price could potentially move higher the next couple of days. This is probably why I am puzzled about the wave count; the corrective pattern is not complete.

A break below the 2/25/10 low will be a good sign that the next leg down has started. I would preferably like to see a clear five-wave move to the downside before I will emphatically say the next leg down has started.

GLD has also continued to make lower highs and lows since the 12/3/09 high. It bounced just has everything else did, off the 2/5/10 low. I have labeled the chart with my Elliott Wave count and as you can see, there are two separate 1 and 2 waves. There are waves 1 and 2 along with waves i and ii. Wave 2 cannot be broken for this interpretation to remain valid. There is a trend line connecting the tops of wave 2 and ii that should be formable resistance.

A break below the 2/25/10 low will be an alarm signaling the next leg is underway. Since we are talking about a third of a third wave, the decline should be sharp. I expect the price to reach the 96 level rather quickly.


You want to guess as to what low SLV has bounced. It is amazing is it not, how 2/5/10 always pops up? The wave count for SLV however is a little different. As you can see how I have labeled the count, there are four waves so far. Wave 4 should be complete. The price must stay below the 16.50 level. Wave 4 cannot overlap wave one in an impulse wave. With that said, wave 5 should be underway soon, taking the price below the 2/5/10 low.

The price is back above the 233 EMA; however, it has found itself inside the TAZ. It is also against the 55 EMA. SLV traded higher today, but closed at the lows of the session. This may be the sign that the price is about to decline as anticipated.

Concluding Comments

I do not know if you noticed or not, but everything is in harmony. All the markets discussed had their pivot with the date of 2/5/10. If you think oil and gold is heading higher as the stock market heads lower, you better thing again. It all is coming down. That is what happens in a deflationary cycle and that is what we are in right now. I do not intend to scare you, just telling you what the charts are telling me.

Cash is a good investment strategy and should be seriously considered. The dollar and interest rates will be the only thing that will rise during this decline. People will be scrambling for cash, thus pushing the dollar higher with the demand.

Interest rates will rise due to several reasons. One being that no one will want to own any government debt, much less municipal and corporate debt. Rates will have to rise in hopes of increasing demand. Banks do not want to lend right now and tighten even ore as the economy continues to decline. Therefore, rates will rise on any new loans to cover the risk in a soar economy. I am no economist, but this is how I can see it.

Refer to last month’s newsletter in the concluding comments for where I expect the price to fall for the Dow Jones. As I said above, cash is a worthy investment. Imagine what cash will buy at the low of the deflationary cycle. If you must invest, I recommend investing a small portion of your investment capital with short sells or Bear ETFs. There is no reason to be long in any stock or commodity.

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