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Metals Break Through Support Driving Mining Stocks Lower

David Becker
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Metals Break Through Support Driving Mining Stocks Lower

Metals and mining stocks were slammed on Monday. Gold, silver and platinum were down around 1% in afternoon trading. Iron-ore prices hit five-year lows this month. Overall, gold is trading some $600 below its peak in July 2011. Silver is down more than 50% since April 2011. Platinum is some 25% below its 2011 high. The Metals & Mining’s SPDR (XME) is broke above resistance in mid-August and then stalled for a few weeks. A stall around resistance is ok, but it is important that the breakout hold. Well, the breakout did not hold as XME broke down with a sharp decline below 42.50 Monday.

Target support on the XME is now seen near the 200-day moving average a 41. Momentum has turned negative as the MACD (moving average convergence divergence) index generated a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.

The Steel ETF (SLX) is still within a consolidation pattern. The ETF broke out in late June and moved to a 52-week high in late July. Trading, however, has been flat since early July as the ETF bounced between 48 and 50. A break above consolidation resistance would be bullish, but the ETF is showing relative weakness and a break below support would be bearish.

It could be a big week for retail stocks because the Commerce Department will report August Retail Sales on Friday. This is an important report because it includes the back-to-school season, which is the second biggest season after Christmas. The Retail SPDR (XRT) formed a higher low in the 83-84 area and then surged to a new high in late August. The ETF has since consolidated in the 88 to 90 area over the last two weeks. Long-term, the overall trend is up and this is net positive for the stock market.

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