Sunday, July 03, 2016

China (YANG), Energy (XLE) and Health (XLV): Still Caught In Condensing Patterns

I  mentioned the weekend before the Brexit that a lot of equities were caught in condensing triangle patterns - patterns that by there very nature can move either up or down as the equity squeezes into a tighter and tighter area, and I thought it was appropriate that mere days before the historic vote a lot of Index ETF's were displaying that pattern. I thought it was an indication of the ambiguity the market generally felt towards the outcome of the vote and strongly everyone felt how it might go either way. Some of those equities have since broken out of the triangles, but as I am going to illustrate below, some of those equities are still in condensing triangles which I find quite puzzling.  If these triangles do break upwards, why? Evidence is showing an enormous number of money managers and insiders are in cash.

China: FXI
About two weeks ago FXI broke out of a long term declining channel and seems to have entered a new one but meantime seems stuck in this condensing triangle. It has at the upper resistance level so next week a breakout will be very bullish. What worries me though is that this market really shouldn't be bullish, especially after comments have been recently of China's junk bond market freezing up.
Energy: XLE
Energy is not in a condensing triangle but I did query whether it was in a bull flag last week. It is still in this pattern but once again next week we are expecting a breakout.
Health Sector: XLV
Health Sector ETF XLV has been in a massive condensing triangle for almost a year now and appears poised to breakout. Bullish crossovers on the EMA's are in place and my long term MACD (55,140,0) indicator says this has been a buy since May!