After a relatively short pullback the prior three days, stocks rebounded with a strong move on Friday. The major indices were all up 2% or more with the Russell 2000 leading the charge (+3.42%). Relative strength in small-caps is a big positive for the market. We are also seeing continued relative strength in big techs, which is also positive. All sectors were up with five of the nine sectors surging over 2%. Finance and industrials led the way higher. Finance has been lagging the last two weeks so a little relative strength in this key sector was also positive. The chart below shows the Russell 2000:S&P 100 ratio chart (a.k.a. the price relative). After a small bullish divergence in late August, the ratio has been moving higher as small-caps outperform the last six weeks. The bulls are in good shape as long as this ratio holds its mid September lows.
On the daily chart, SPY broke above its summer highs on Monday, pulled back during the week and then surged off broken resistance on Friday. As far as the current uptrend in concerned, SPY formed a higher low in late August and a higher high in late September. Higher highs and higher lows define an uptrend. Moreover, Friday's surge affirms support from broken resistance around 112. Even though the trend is clearly up here, I am leaving the ABC correction possibility on the chart. In addition, the upper trendline was drawn parallel to the lower trendline and its extension marks potential resistance around 115. CCI remains in the indicator window. Notice that CCI dipped below 100 at the end of July and then moved back above in early August. A little reaction low established momentum support at 50. The break below this low in early August coincided with the August decline. A similar low formed in CCI this week. A move below 112 in the ETF and 50 in CCI could be used as a short-term bearish trigger.
On the 60-minute chart, SPY formed a falling flag last week and broke above flag resistance with a gap up on Friday. The gap held and remains bullish until proven otherwise. Support at 112 has been affirmed, as has RSI support in the 40-50 zone. Look for a break below 112 in SPY and 40 in RSI to reverse this short-term uptrend.
It is a pretty big week on the economic front, especially on Friday. Fed governor speaks on Friday morning and the market gets hit with Michigan sentiment, construction spending and the ISM Index around 10AM.
Key Economic Reports:
Tue - Sep 28 - 09:00 - Case-Shiller Index
Tue - Sep 28 - 10:00 - Consumer Confidence
Wed - Sep 29 - 10:30 - Oil Inventories
Thu - Sep 30 - 08:30 - GDP Estimate
Thu - Sep 30 - 08:30 - Jobless Claims
Thu - Sep 30 - 09:45 - Chicago PMI
Thu - Sep 30 - 16:30 – Fed Balance Sheet
Fri - Oct 01 - 08:30 - Personal Income an Spending
Fri - Oct 01 - 09:55 - Michigan Consumer Sentiment
Fri - Oct 01 - 10:00 - Construction Spending
Fri - Oct 01 - 10:00 - ISM Index
Fri - Oct 01 - 14:00 - Auto Truck Sales
Charts of Interest: Tuesday and Thursday
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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