The demise of the consumer discretionary remains the most important event of the last few weeks. The Consumer Discretionary SPDR (XLY) was holding up fine in May, but came down hard in June and is the weakest of the eight sectors this month. Consumer discretionary is no ordinary sector. It is the most economically sensitive sector and weakness here bodes ill for the economy. Even though the 10-year Treasury Bond yields less than 3.10%, we are also seeing continued strength in the bond market. Strength in bonds also points to economic weakness, deflation or both. I am also quite concerned to see money moving into instruments with such low returns. It reflects a certain flight to safety. Speaking of safety, the Euro hit resistance and fell yesterday. Further weakness in the Euro would also assist the risk-off trade. Don't forget that we have the Employment Report on Friday. After the last debacle, buyers may be hard pressed to enter the market ahead of this report.
SPY tried to firm with a spinning top on Friday, but fell back on Monday as selling pressure resumed. This chart currently looks bearish. A lower high formed around 113, which is also near the 50% retracement. The ETF came down hard last week and negated its prior breakout. RSI failed at the 50-60 zone and moved below 50. At best, it looks like another test of the February-May lows is in order. At worst, we could see a break below this key support level.
On the 30-minute chart, SPY formed a triangle consolidation over the last two days. This is simply a rest within an ongoing downtrend that started with the support break at 110.5. RSI also broke below 40 on 22-June to turn momentum bearish and confirm the support break. I am setting short-term resistance at 108.5. SPY needs to break this level and RSI needs to break 60 to reverse the short-term downtrend. A break below triangle support would signal a continuation lower with a target in the 104-106 area.
It is a busy week on the economic calendar with the employment report due on Friday. The last report (June 4th) sent stocks sharply lower after non-farm payrolls grew less than expected. This report could have an amplified impact because trading may be thin on Friday. Monday, July 5th, is an exchange holiday and traders may look to get a jump on the weekend with an early exit on Friday. Hey, I am thinking that way myself!
Key Economic Reports:
Jun 29 - 09:00 - Case-Shiller Index
Jun 29 - 10:00 - Consumer Confidence
Jun 30 - 08:15 - ADP Employment Report
Jun 30 - 09:45 - Chicago PMI
Jun 30 - 10:30 - Crude Inventories
Jul 01 - 08:30 - Initial Claims
Jul 01 - 10:00 - ISM Index
Jul 01 - 10:00 - Pending Home Sales
Jul 01 - 14:00 - Auto-Truck Sales
Jul 02 - 08:30 - Unemployment Report
Jul 02 - 10:00 - Factory Orders
Charts of Interest: BIIB, CHRW, DELL, JBHT, JOYG, PRGO
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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