After strong buying pressure four of the last five days, stocks took a breather on Tuesday as the S&P 500 ETF (SPY) forged a small red candlestick. SPY opened above 112 and closed below 112. After a strong open, SPY moved lower and this indicates selling pressure. The strong July surge and wedge breakout are medium-term bullish, there are at least two reasons to expect a consolidation or a pullback in the coming days. First, the ETF is up around 10% from its July low (~102 to ~112). A 10% advance in 16 days shows strength, but it also creates a short-term overbought situation. Second, there is still potential resistance around 112. The yellow area shows a resistance zone based on the highs from early June, mid June and early July. In addition, the advance to 112 retraced 50-62% of the April-July decline. Key support is set at 106, but a bullish pullback should be relatively shallow and find support around 108-109.
On the 60-minute chart, SPY continues to work its way higher within a clear short-term uptrend. The ETF is short-term overbought as RSI hovers around the 70. Overbought conditions are not always bearish, but they do increase the chances of a pullback or consolidation. I am raising key support to 108. The July trendline comes in around 109 as well. A pullback that exceeds the 108-109 area would be deemed excessive and warrant a re-evaluation of the short-term uptrend. RSI should be considered bullish as long as it holds above the 40-50 zone.
Key Economic Reports:
Wed - Jul 28 - 08:30 - Durable Goods Orders
Wed - Jul 28 - 10:30 - Crude Inventories
Wed - Jul 28 - 14:00 - Fed's Beige Book
Thu - Jul 29 - 08:30 - Jobless Claims
Fri - Jul 30 - 08:30 - GDP
Fri - Jul 30 - 09:45 - Chicago PMI
Fri - Jul 30 - 09:55 - U Michigan Sentiment
Charts of Interest: None today.
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.
Key Economic Reports:
Wed - Jul 28 - 08:30 - Durable Goods Orders
Wed - Jul 28 - 10:30 - Crude Inventories
Wed - Jul 28 - 14:00 - Fed's Beige Book
Thu - Jul 29 - 08:30 - Jobless Claims
Fri - Jul 30 - 08:30 - GDP
Fri - Jul 30 - 09:45 - Chicago PMI
Fri - Jul 30 - 09:55 - U Michigan Sentiment
Charts of Interest: None today.
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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