The NYSE AD Volume Line moved to a new high last week, but the Nasdaq AD Volume Line failed to exceed its prior high and traded flat. We also saw a little relative weakness in the Nasdaq and techs relative to the broader market last week. The 23-Sept lows now mark short-term support for the AD Volume Lines. A break would reverse the uptrend and turn breadth short-term bearish. The indicator windows show Net Advancing Volume. Notice how NYSE Net Advancing Volume was less than the prior weak and Nasdaq Net Advancing Volume had a rather deep dip into negative territory. Buying pressure weakened on the NYSE and selling pressure ticked higher on the Nasdaq.
On the daily chart, I am showing a more expanded view of SPY to highlight the potential ABC correction. These zigzag corrections come from Elliott Wave and there are three reasons to expect resistance and/or a reversal. First, Wave A is sometimes equal to Wave C, which targets a move to around 116. Second, these corrections can also retrace around 62% of the prior decline. Even though SPY overshot this retracement mark (113.11), it is stalling just above and overshoots are all part of the game. Third, the channel extension targets a move to around 116. The upper trendline of the rising price channel was drawn parallel to the lower trendline. Should the consequences of this bearish setup come to pass, a peak would be expected soon and the downside projection would be below the July lows. Ouch. However, the September uptrend has yet to reverse itself. On the daily chart, broken resistance around 112 is holding and the inverse head-and-shoulders pattern remains the confirmed pattern – for the moment. A sharp move below 112 would call for a re-evaluation.
On the 60-minute chart, SPY broke above falling flag resistance with a gap up on 24-Sept and the gap/breakout are still holding. While the inability to follow through may seem negative, the cup is still half full for the bulls. SPY successfully tested support around 113-114 a few times last week. A break below 113 would reverse the short-term uptrend. Also watch RSI support around 40-50. A confirming break below 40 would turn short-term momentum bearish. And there you have it. Short-term, we can watch the AD Volume Lines, SPY support at 113 and RSI support at 40.
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:
Mon - Oct 04 - 10:00 - Factory Orders
Mon - Oct 04 - 10:00 - Pending Home Sales
Tue - Oct 05 - 10:00 - ISM Services
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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