Trading turned mixed as the Dow and S&P 500 tested important resistance levels. The S&P 500 and Nasdaq finished with small gains, but the Dow and Nasdaq 100 finished with small losses. The Russell 2000 and S&P 400 Midcap Index closed with modest gains to show some relative strength on Monday. Sectors were also mixed with five down and four up. Financials weighed on the market with a small loss, but the consumer discretionary ended with a small gain. The three defensive sectors (healthcare, utilities, consumer staples) all finished with small gains.
The major index ETFs and breadth indicators show the market at an important juncture. The 10-day SMA of NYSE Net Advancing Volume rose over the last five and reached positive territory three times in the last two weeks. Further strength into positive territory would keep the rally alive and produce important breakouts. Failure near the zero line and a break below last week's low would reverse the uptrend and open the door for a test of the May-June lows. The second chart shows the 10-day SMA for Nasdaq Net Advancing Volume. Notice that this indicator has yet to push into positive territory. Positive breadth is needed to sustain this rally. A failure at the zero line and move below last week's low would turn this indicator short-term bearish.
The major index ETFs and breadth indicators show the market at an important juncture. The 10-day SMA of NYSE Net Advancing Volume rose over the last five and reached positive territory three times in the last two weeks. Further strength into positive territory would keep the rally alive and produce important breakouts. Failure near the zero line and a break below last week's low would reverse the uptrend and open the door for a test of the May-June lows. The second chart shows the 10-day SMA for Nasdaq Net Advancing Volume. Notice that this indicator has yet to push into positive territory. Positive breadth is needed to sustain this rally. A failure at the zero line and move below last week's low would turn this indicator short-term bearish.
On the daily chart, SPY surged to resistance in the morning and backed off resistance in the afternoon. Even though the S&P 500 closed with a small gain, SPY closed with a small loss. The candlestick is red because the close was below the prior close. The candlestick is filled because the close was below the open. Resistance in the 110-111 area is clear. Moreover, the downtrend remains in place as long as resistance holds. A break and close above 111 is needed to fully reverse the 7-8 week downtrend. RSI is also testing resistance around 50. In a downtrend, this is the area where RSI should hit resistance and start moving lower.
With the 7-8 week trend down and SPY at resistance on the daily chart, top pickers are licking their chops as SPY failed at resistance. The ETF gapped up, moved above 111 and then closed at 109.51 to fill the gap. To be fair, the ETF was short-term overbought after a 6 point (5-6%) advance in 5 days. I am not sure where to mark key support for the 5 day upswing. The 108-109 level seems logical because of Friday's pennant and the pink trendline. However, the ETF will already be in the mid section of its trading range by the time it breaks support. At this point, it seems prudent to lean bearish near resistance and neutral in the middle.
Key Economic Reports:
Wed - Jun 16 - 08:30 - Housing Starts
Wed - Jun 16 - 08:30 - Building Permits
Wed - Jun 16 - 08:30 - PPI
Wed - Jun 16 - 09:15 - Industrial Production
Wed - Jun 16 - 10:30 - Crude Inventories
Thu - Jun 17 - 08:30 - Initial Claims
Thu - Jun 17 - 08:30 - CPI
Thu - Jun 17 - 10:00 - Leading Indicators
Thu - Jun 17 - 10:00 - Philadelphia Fed
Charts of Interest: ABX, DE, LTD, SLB
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.
Learn More
