On the daily chart, the S&P 500 ETF (SPY) broke above range resistance with a gap and long white candlestick on Tuesday. This move clearly keeps the uptrend alive. SPY broke above its summer highs in late September and this breakout held. Even though the ABC correction was and is still possible, current conditions remain bullish until proven otherwise. Namely, it would take a break below 113 to argue for a reassessment. Also notice that the Commodity Channel Index (CCI) held above 50 during the latest consolidation. A break below 50 would have been the earliest signal of weakness in momentum, but it never happen and 50 remains the level to watch.
On the 60-minute chart, SPY gapped up and broke flag/wedge resistance for the second time in three weeks. This second gap/breakout further reinforces support at 113. SPY was at its make-or-break level and the bulls delivered. Failure to hold the breakout and a move below support at 113 would reverse the current uptrend. RSI bounced off the 40-50 support zone to further affirm the important of this area to the short-term uptrend.
It is another big week on the economic front. ISM Services will be reported on Tuesday morning. We also get a couple of peaks at the employment picture with the ADP report on Wednesday and Jobless Claims on Thursday. Friday, of course, is the granddaddy of them all.
Key Economic Reports:
Wed - Oct 06 - 07:00 - MBA Mortgage Application
Wed - Oct 06 - 08:15 - ADP Employment Change
Wed - Oct 06 - 10:30 - Oil Inventories
Thu - Oct 07 - 07:00 – Bank of England Policy Statement
Thu - Oct 07 - 07:45 – European Central Bank Policy Statement
Thu - Oct 07 - 08:30 - Jobless Claims
Fri - Oct 08 - 08:30 – Employment Report
Charts of Interest: Tuesday and Thursday.
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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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