There were some serious rumblings in the intermarket arena on Tuesday. Bonds plunged, long-term rates surged, the Euro declined sharply and the Dollar bounced. Forget about the Fed and QE2. These are already priced into the market. Bonds and the Dollar are looking ahead of QE2. Long-term rates are rising and this could be bullish for the Dollar. The Euro and stock market have been positively correlated through 2010. Further weakness in the Euro could be bearish for stocks.
There is no change on the daily or 60-minute charts. Even though the advance has grown laborious, SPY remains in an uptrend on the daily chart. The surge above 114 on September 20th marked the easy part of the advance. Since this surge, SPY has worked its way higher within a rising price channel. All kinds of indecisive and bearish candlesticks formed, but these were never confirmed with a downside move. A break below channel support would argue for a pullback towards broken resistance around 112. CCI remains in its bull zone and has yet to break 50 to signal weakness in momentum.
The 60-minute chart details the channel. SPY gapped above resistance on Monday, but fell back after this gap and the breakout is under threat. I am setting key short-term support at 117. A move below this level would break the channel trendline and Thursday's reaction low. Combined with an RSI break below 40, this would be enough to reverse the short-term uptrend.
Key Economic Reports:
Oct 27 - 07:00 - MBA Mortgage Applications
Oct 27 - 08:30 - Durable Orders
Oct 27 - 10:00 - New Home Sales
Oct 27 - 10:30 - Oil Inventories
Oct 28 - 08:30 - Jobless Claims
Oct 28 - 16:30 – Fed Balance Sheet
Oct 29 - 08:30 - GDP
Oct 29 - 09:45 - Chicago PMI
Oct 29 - 09:55 - Michigan Sentiment
Charts: Tuesday and Thursday in separate post.
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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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