Looking for new setups? This ETF is taking off

Total volume in the NYSE increased by 3% yesterday, while
volume in the Nasdaq
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Though volume did not spike significantly, it was enough for both the S&P
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and Nasdaq to register a bullish “accumulation day” yesterday, the first since
September 16. Market internals were also bullish across the board. Advancing
volume in the NYSE exceeded declining volume by a margin of nearly 3 to 1. That
ratio was just a little lower in the Nasdaq.

Nearly every major industry sector turned in a solid gain
yesterday, with the Airline Index
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XAL |
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closed in the red.
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FXI |
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PowerRating), the exchange traded fund that tracks the Xinhua
China 25 Index, sprinted 3.5% higher and broke out of a five-week base. We have
been stalking FXI for a potential long entry during the past week, but most of
yesterday’s gain was the result of an opening gap up. After China revalued their
currency in July, FXI rallied sharply for the next several weeks and peaked in
mid-August. Since then, it has mostly been correcting by time, consolidating in
a narrow, sideways range above its 20 and 50-day moving averages. As we often
see, FXI broke out to new highs after its price came into convergence of the 20
and 50-day MAs. The move was also confirmed by volume that was nearly double its
average. The daily chart of FXI below illustrates the breakout:

We now expect FXI to resume its primary uptrend and set a new
high, but be aware that much of its move often comes in the form of opening gaps
that are caused by the difference in time zones of the Chinese and U.S. markets.
Energy-related ETFs maintained their resiliency yesterday, as
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(Utilities HOLDR) and
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highs. Gold stocks continued to show their luster, as the CBOE Gold Index
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rallied another 2.3% and closed at a fresh record high. A $3 jump in the price
of spot gold also enabled our long position in
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at an all-time high as well.

Thursday’s rally in the S&P 500 caused the index to close back
above both its 20 and 50-day moving averages, but right at resistance of its
September downtrend line. While the recovery back above the 20 and 50-day MAs is
certainly positive, caution is still required on the long side of the market due
to resistance of the downtrend that has been in place since the high of
September 9. The descending red line on the chart below illustrates the
downtrend that remains intact:

Conversely, the Nasdaq Composite closed above its September
downtrend line yesterday, but is still below both its 20 and 50-day MAs:

As you might expect, resistance of the 50-day MA at the 2,155
level is a key area to watch. Even if the Nasdaq manages to clear its 50-day MA,
resistance of the downtrend line from the August 3 high (the dotted red line on
the chart above) still looms overhead. Thursday’s broad market performance was
positive, but stocks are certainly not “out of the woods” yet. The major indices
are now showing mixed technical signals, trapped between key support and
resistance levels, so keeping a largely cash position right now is a wise move.