Technical Picture - Rally Extended

Equities closed the week with a string of five consecutive daily gains resulting in a 5.4% gain on the week, the best weekly performance since late June, but only the second weekly gain since the markets rolled over.

The week started on a low note as Europeon debt fears spilled over to Monday's open, but in the afternoon attention turned to rumors that a sovereign wealth fund from China was talking with Italy about a bond purchase. That news helped stocks stage a rally, which gained traction as short sellers were squeezed out of their positions. Later in the week another boost in confidence came on news that the European Central Bank had coordinated with other central banks, including the Fed, to make dollar loans available to European banks. These measures trumped poor economic data and by week's end traders felt compelled to chase the markets higher.

Watch the 50 SMA and top of channel for resistance if we make it that far.

An update of the chart I posted Wednesday, shows that the QQQ has leaped even farther ahead than the broader markets on the strength of AAPL (BO of symmetrical triangle) and leadership provided by the SMH, which has staged a sharp recovery after bottoming on August 19th. Notice how the IWM and SPY are starting to flatten out. Non-confirmation of new recovery highs in the QQQ by the broader markets is a red flag - caution going into next week.

As we can see from the chart below, the SMH has retraced almost 62% of the last leg down. Friday's stick is a bearish spinning top in the ambush zone and I expect a retracement to kick in early this week.

The chart below shows some leading names in the SMH that I follow. SNDK has been ripping higher since the beginning of Sept., up over 30% since Aug. 19.

Copper futures don't look very healthy. Copper is generally considered as a leading indicator for the broader markets and it has carved out a bearish H&S pattern within a double top. If it breaks out successfully, look for a $0.60 drop as targeted on the chart below.

Gold futures appear to be forming an ascending triangle.