SLX Update

Well, SLX has reached an important support level at around $75. In fact, a little over a year ago, in July 2007, we saw some resistance around the same level. (Proving Chris' aphorism: "Previous resistance becomes new support and vice versa.")

We had a negative divergence from the MACD at the end of last year (blue lines over MACD and above the period marked "Consolidation Phase") and in March through May of this year we saw the MACD edge up slowly while the price of the security went from $90 to $115, before the MACD sell signal occurred. In March when we saw the same signal, it was a burp as the ETF trended higher, but this time it crossed the zero line and kept going.

Now I know we don't usually pay attention to volume, but notice how the last downtrend caused a tremendous increase in volume. Maybe buyers bought in expecting another turn up, or maybe they anticipated a deeper move down.

Regardless, everybody's going to be watching to see if SLX breaks through old support or rebounds.

The Steel/Iron BP chart recently changed columns, from Os to Xs, after hitting the 12% mark. Both BPI charts reflecting the percentage of stocks above their 10- and 30-week moving averages are in columns of Xs. And, according to the Sector Hunter calculation (whatever they may be!), the sector is on a Relative Strength Buy Signal.

SLX shares 46.9% of the same constituents as those on which the Investors Intelligence BPI for the sector is based.

Precious Metals Update

If you bought into precious metals in May (on the first crossover) or in June (on the second crossover), you probably aren't a happy camper, since the recent drop to the 6% BPI level -- its lowest ever on the available chart. Remember, however, that this is a long-term buy signal. Even though one can never tell how long we could stay in oversold territory, you might consider entering a position upon a reversal back to a column of Xs. To reiterate my observation below, "it's rebounded to above 60% every time, between THREE AND EIGHT MONTHS after the low."

Precious Metals were up in May, down in June, up AND down in July. The Precious Metals BPI got close to the 18% low in July 2007, but not as low as in 2004 and 2005 (6% & 12%, respectively), so even though it may recede even more to the 10% BPI level, it looks like that, once it's broached the 20% mark, it's rebounded to above 60% every time, between 3 and 8 months after the low.

01 August 2008 SLX

Gerald,
Steel appears to be a volatile sector. The move you refer to in the sector BPI from 60% to 18% all happened in July 2008! The same is true for the reversal from $100 to $81 in SLX -- it all happened last month. For SLX previous support seems to be at $75 and it found new support in March at $81 (on the BPI). This is precarious at best since it was violated in late March and hasn't been tested again till now. Although the BPI and the 30% wk ma charts are in columns of Xs, the 10% wk ma chart, which suggests shorter term trends, is in a column of Os. So even though the sector is on a Sector Hunter RS Buy signal for the long-term, SLX will probably see some continued volatility, starting to the downside. Having said that, the MACD looks like it's reversing to the upside and the reduced volume on the recent downtrend suggests that there isn't necessarily support for the trend.

I might set my stop loss (is that one word or two?!?) at $81 for the first lot (@ $84.45) and at $87 for the second lot (@90.70), since it found brief support there earlier. This would be in line with Teeka's three-box policy.