Last week's reversal and breakout at 110 were positive, but the five week trend remains down. Participants got cold feet on Friday as SPY moved back below 110 by the close. Nevertheless the ETF is holding the majority of last Thursday's gains. A move below 106.85 would wipe out these gains and negate last week's breakout. The ETF has not put together two consecutive up days since late April. Black candlesticks, filled or hollow, form when the close is up. Red candlesticks, filled or hollow, form when the close is down. Follow through remains limited and this reflects continuing uncertainty in the market. For a full reversal of the five week downtrend, look for the ETF to break the late April trendline (114) and RSI to break above 50.
On the 30-minute chart, a rising wedge is taking shape over the last four days. The bulls have the edge as long as the wedge rises. I am marking the first support zone in the 108.5-109 area. A move below 108.5 would trigger the first sign of weakness.
The chart below shows the NYSE AD Volume Line breaking above the steep May trendline and exceeding its prior reaction high with the surge last Thursday. This is short-term bullish, but the breakout needs to hold. A move below support from last week's low would turn this short-term breadth indicator bearish again. In early trading (4:30AM ET) today,. Asian stocks are down with the Hang Seng losing 1.36%. European stocks are down sharply with the German DAX, London FTSE and French CAC 40 all down around 1.70%. The Euro and oil are also down sharply and gold is up. The US is set to open sharply lower and it will be important what happens after this gap. Failure to firm and rebound after the first hour would be negative.
It is a big week on the economic front. The week is loaded with key reports starting with the ISM Manufacturing Index today and ending with the big employment report on Friday. According to the Stock Trader's Almanac, Memorial Day week has been up 17 of the last 25 years. However, Memorial Day week was up 12 years in a row from 1984 to 1995 and up just 5 of the last 13 years.
Key Economic Reports:
Tue - Jun 01 - 10:00 - Construction Spending
Tue - Jun 01 - 10:00 - ISM Manufacturing Index
Wed - Jun 02 - 10:00 - Pending Home Sales
Wed - Jun 02 - 10:30 - Oil Inventories
Wed - Jun 02 - 14:00 - Auto-Truck Sales
Thu - Jun 03 - 08:15 - ADP Employment Report
Thu - Jun 03 - 08:30 - Initial Claims
Thu - Jun 03 - 10:00 - Factory Orders
Fri - Jun 03 - 10:00 - ISM Services
Fri - Jun 04 - 08:30 - Employment Report
Charts of Interest: ARO, HAS, MMM, NKE, WHR
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.
The chart below shows the NYSE AD Volume Line breaking above the steep May trendline and exceeding its prior reaction high with the surge last Thursday. This is short-term bullish, but the breakout needs to hold. A move below support from last week's low would turn this short-term breadth indicator bearish again. In early trading (4:30AM ET) today,. Asian stocks are down with the Hang Seng losing 1.36%. European stocks are down sharply with the German DAX, London FTSE and French CAC 40 all down around 1.70%. The Euro and oil are also down sharply and gold is up. The US is set to open sharply lower and it will be important what happens after this gap. Failure to firm and rebound after the first hour would be negative.
It is a big week on the economic front. The week is loaded with key reports starting with the ISM Manufacturing Index today and ending with the big employment report on Friday. According to the Stock Trader's Almanac, Memorial Day week has been up 17 of the last 25 years. However, Memorial Day week was up 12 years in a row from 1984 to 1995 and up just 5 of the last 13 years.
Key Economic Reports:
Tue - Jun 01 - 10:00 - Construction Spending
Tue - Jun 01 - 10:00 - ISM Manufacturing Index
Wed - Jun 02 - 10:00 - Pending Home Sales
Wed - Jun 02 - 10:30 - Oil Inventories
Wed - Jun 02 - 14:00 - Auto-Truck Sales
Thu - Jun 03 - 08:15 - ADP Employment Report
Thu - Jun 03 - 08:30 - Initial Claims
Thu - Jun 03 - 10:00 - Factory Orders
Fri - Jun 03 - 10:00 - ISM Services
Fri - Jun 04 - 08:30 - Employment Report
Charts of Interest: ARO, HAS, MMM, NKE, WHR
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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