The pieces are in place for a short-term bounce, but we have yet to see the catalyst that actually reverses the 5-week downtrend. On the daily chart, SPY opened weak with a gap below last week's low and then rallied to close near the high for the day. Tuesday's candlestick looks just like Friday's candlestick. For the second time in three days, stocks opened very week and then rallied to close strong. Long white candlesticks formed to affirm support in the 106 area - also known as the February low. The 5-week trend remains down, but the bulls are clearly not going to go quietly as SPY battles this key support level.
Despite yesterday's long white candlestick, breadth was mostly negative at the close. Advances outnumbered declines on both the NYSE and the Nasdaq. Declining volume on the Nasdaq was stronger than advancing volume. However, advancing volume on the NYSE was slightly higher than declining volume.
Last week I noted that sentiment was excessively bearish as the VIX surged to its March 2009 levels and the put-call ratio hit a 52-week high. It is also worth noting that the consumer discretionary and technology sectors have been outperforming the last two weeks. Sentiment favors a bounce, long white recovery candlesticks confirm support and relative strength in two key sectors bodes well. However, we have yet to see the catalyst or follow through surge on good breadth and strong volume. This means we are still in bottom picking territory. A close above 110 would break short-term resistance and an RSI break above 50 would turn momentum bullish again.
There is not much to add on the 30-minute chart. SPY gapped down, firmed and then advanced into the prior consolidation zone (107-110). Filling the gap is positive, but this zone now acts as resistance. A move above 110 would break consolidation resistance and the trendline extending down from mid May.
Key Economic Reports:
Wed - May 26 - 08:30 - Durable Orders
Wed - May 26 - 10:00 - New Home Sales
Wed - May 26 - 10:30 - Crude Inventories
Thu - May 27 - 08:30 - GDP Estimate
Thu - May 27 - 08:30 - Initial Claims
Fri - May 28 - 09:45 - Personal Income and Spending
Fri - May 28 - 09:45 - Chicago PMI
Fri - May 28 - 09:55 - U. Michigan Consumer Sentiment
Charts of Interest: AMR, DHR, FCX, JBLU, X
This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.
Last week I noted that sentiment was excessively bearish as the VIX surged to its March 2009 levels and the put-call ratio hit a 52-week high. It is also worth noting that the consumer discretionary and technology sectors have been outperforming the last two weeks. Sentiment favors a bounce, long white recovery candlesticks confirm support and relative strength in two key sectors bodes well. However, we have yet to see the catalyst or follow through surge on good breadth and strong volume. This means we are still in bottom picking territory. A close above 110 would break short-term resistance and an RSI break above 50 would turn momentum bullish again.
There is not much to add on the 30-minute chart. SPY gapped down, firmed and then advanced into the prior consolidation zone (107-110). Filling the gap is positive, but this zone now acts as resistance. A move above 110 would break consolidation resistance and the trendline extending down from mid May.
Key Economic Reports:
Wed - May 26 - 08:30 - Durable Orders
Wed - May 26 - 10:00 - New Home Sales
Wed - May 26 - 10:30 - Crude Inventories
Thu - May 27 - 08:30 - GDP Estimate
Thu - May 27 - 08:30 - Initial Claims
Fri - May 28 - 09:45 - Personal Income and Spending
Fri - May 28 - 09:45 - Chicago PMI
Fri - May 28 - 09:55 - U. Michigan Consumer Sentiment
Charts of Interest: AMR, DHR, FCX, JBLU, X
This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.
About the author:
Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London.
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