The medium-term picture is perking up as stocks finished strong last week. SPY started the week with an indecisive candlestick last Monday. After a weak open below 106 on Tuesday, SPY finished strong with a close above 108 that very same day. There was a sharp pullback on Wednesday, but SPY held above Tuesday's low and surged to new highs for the week on Thursday-Friday. All in all, it was an impressive week with two recoveries. Three other items are also worth mentioning. First, techs and small-caps led last week's rally. Second, the NYSE AD Line broke above its June high. Third, NYSE Net New Highs surged to their highest levels since the beginning of May.
On the daily chart, SPY broke above the wedge trendline and edged above its mid July high. The ETF surged to 110 in mid July and pulled back below 106 last week. This pullback established another lower high and key resistance. With last week's close above 110, the ETF broke the wedge trendline and exceeded its mid July high. The early signs of a breakout are materializing here. Last week's low around 106 becomes key support. In the indicator window, RSI moved back into the 50-60 zone, but has yet to break above 60. This zone has acted as resistance since May. A break above 60 is needed to turn momentum bullish. Even though the market is looking stronger, keep in mind that SPY is up almost 8% from its July low and still in a potential resistance zone around 110-112.
On the 30-minute chart, SPY reversed the mid July support break with a surge above 109. The short-term trend turned down with the mid July break below 108. RSI confirmed with a break below the 40-50 support zone. The first oversold bounce into the 108-109 area failed as SPY moved back below 107 on Wednesday. As of Wednesday's close, the short-term downtrend was intact and the oversold bounce failed to produce a breakout. Moreover, SPY established a new resistance level at 109. The bears did not have long to feel smug as SPY surged above 109 on Thursday morning. RSI also moved above 60 to turn momentum bullish again. Currently, the short-term picture is bullish with support at 106.5 and RSI support in the 40-50 zone.
Key Economic Reports:
Mon - Jul 26 - 10:00 - New Home Sales
Tue - Jul 27 - 09:00 - Case-Shiller Index
Tue - Jul 27 - 10:00 - Consumer Confidence
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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