Despite the Irish bank bailout, the Euro declined on Monday and was down in overnight trading on Tuesday. Stocks and the Euro have been positively correlated since April as the Euro pretty much defines the risk on-off trade. Strength in the Euro favors the risk-on trade and stocks. Weakness in the Euro favors the risk-off trade and a flight to safety. The bears appear to have an edge with the weak Euro and short-term breadth signals, but stocks showed some resilience on Monday. Semis, Retailers, small-caps and large-cap tech led the market higher. The S&P 500 was weighed down by the finance sector, which was under pressure because of European debt concerns and hedge fund investigations. I still think we need to focus on the Euro. SPY peaked with the Euro on 4-Nov and bounced with the Euro over the last few days. FXE formed a rising flag and is on the verge of breaking flag support.
On the daily chart, I can make the case for short-term resistance just above 120. SPY broke the lower trendline of the rising price channel with a gap down last week. After becoming oversold near 118, the ETF firmed and answered with a gap up on Thursday. The broken trendline extension is now turning into resistance as SPY stalled the last three days. Also notice that CCI is hitting resistance at the zero line. This is the make-or-break point. A move above the three day high would be short-term bullish.
On the 60-minute chart, SPY broke support and RSI moved below 30 to turn the short-term trend down last week. Despite yesterday's strong close, the ETF fell short of a breakout needed to revive the bulls. SPY gapped up and consolidated the last three days. There was no follow through to the gap, but the gap is holding. Talk about between a rock and a hard place. A break above 120.5 would signal a continuation of last week's surge and open the door to a test of the November highs. Also an RSI break above its 3-day high would be bullish. RSI is currently meeting resistance at 60. This is the make-or-break point for the short-term trend.
Key Economic Reports:
Tue - Nov 23 - 08:30 - GDP Estimate
Tue - Nov 23 - 14:00 - Minutes of FOMC Meeting
Wed - Nov 24 - 07:00 - MBA Mortgage Applications
Wed - Nov 24 - 08:30 - Personal Income
Wed - Nov 24 - 08:30 - Durable Orders
Wed - Nov 24 - 08:30 - Initial Claims
Wed - Nov 24 - 09:55 - Michigan Sentiment
Wed - Nov 24 - 10:00 - New Home Sales
Wed - Nov 24 - 10:30 - Crude Inventories
Thu – Nov 25 – 09:00 - Thanksgiving
Fri – Nov 26 – 09:00 – Market Closes at 1PM ET
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.
