There is no change in the stock market analysis. Both the medium-term (daily chart) and short-term (60-minute chart) trends are up with no signs of selling pressure. Focus may turn to the intermarket area as bond yields test support, the Euro challenges resistacne and trades at a multi-week low. The first chart below shows the 10-year Treasury Yield ($TNX) testing support around 3.25% (32.5 on the chart). With a descending triangle taking shape, a support break would call for lower rates (higher bond prices). For now, support is holding and the bigger trend for interest rates is up, which means the bigger trend for bonds is down. The lower window on the chart shows the 7-10 year Bond ETF (IEF) with a rising wedge over the last four weeks. A break below wedge support would signal a continuation of the December decline in bonds.
The Euro remains in focus as well. The Euro Currency Trust (FXE) broke support with a sharp decline in early January and then recouped these losses with a surge back above 133 last week. I expected FXE to hit resistance around 131-131.25, but the ETF blew through this level and showed more strength than expected. That is potentially bullish. FXE is now challenging resistance from the December highs around 133.75. A break above this level would be Euro bullish and Dollar bearish.
Movement in the Euro/Dollar could move gold, but I am not sure which way! The Dollar surged in early January and the Gold SPDR (GLD) fell sharply. The Dollar then plunged last week and GLD broke below its December lows. The normal inverse relationship between the Dollar and gold did not work last week. Perhaps it was just an off week. Further weakness in the Dollar could give way to a bullion bounce. A break above last week's high is needed to reverse the short-term downtrend.
As noted last week, this December-January advance looks awfully familiar. Looking back, we can see that SPY surged in early September, CCI became overbought and the ETF continued higher the next seven weeks. Looking at the current rally, we can see that SPY surged in early December, CCI became overbought and the ETF has been channeling higher the last 6 weeks. I am not going to equate the length of the first channel with the length of the second and predict a top in 10 days. However, I will note that the first channel ended after a big surge above 120, which was a buying climax. It may take a buying climax to reverse this channel.
On the 60-minute chart, SPY remains within a rising channel with the upper trendline in sight. Broken resistance just below 128 becomes the first support level to watch now. This support area is confirmed by the lower trendline. While a break below this level would be negative, I would not consider it a definitive trend reversal. Key support remains at 126. RSI also remains bullish as long as it holds the 40-50 zone.
Key Economic Reports:
Tue - Jan 18 - 08:30 - Empire Manufacturing
Tue - Jan 18 - 10:00 - NAHB Housing Market Index
Wed - Jan 19 - 07:00 - MBA Mortgage Purchase Index
Wed - Jan 19 - 08:30 - Housing Starts/Building Permits
Thu - Jan 20 - 08:30 - Initial Claims
Thu - Jan 20 - 10:00 - Existing Home Sales
Thu - Jan 20 - 10:00 - Leading Indicators
Thu - Jan 20 - 10:00 - Philadelphia Fed
Thu - Jan 20 - 11:00 - Crude Inventories
Charts of Interest: Tuesday and Thursday in separate post.
-----------------------------------------------------------------------------
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.
Movement in the Euro/Dollar could move gold, but I am not sure which way! The Dollar surged in early January and the Gold SPDR (GLD) fell sharply. The Dollar then plunged last week and GLD broke below its December lows. The normal inverse relationship between the Dollar and gold did not work last week. Perhaps it was just an off week. Further weakness in the Dollar could give way to a bullion bounce. A break above last week's high is needed to reverse the short-term downtrend.
As noted last week, this December-January advance looks awfully familiar. Looking back, we can see that SPY surged in early September, CCI became overbought and the ETF continued higher the next seven weeks. Looking at the current rally, we can see that SPY surged in early December, CCI became overbought and the ETF has been channeling higher the last 6 weeks. I am not going to equate the length of the first channel with the length of the second and predict a top in 10 days. However, I will note that the first channel ended after a big surge above 120, which was a buying climax. It may take a buying climax to reverse this channel.
On the 60-minute chart, SPY remains within a rising channel with the upper trendline in sight. Broken resistance just below 128 becomes the first support level to watch now. This support area is confirmed by the lower trendline. While a break below this level would be negative, I would not consider it a definitive trend reversal. Key support remains at 126. RSI also remains bullish as long as it holds the 40-50 zone.
Key Economic Reports:
Tue - Jan 18 - 08:30 - Empire Manufacturing
Tue - Jan 18 - 10:00 - NAHB Housing Market Index
Wed - Jan 19 - 07:00 - MBA Mortgage Purchase Index
Wed - Jan 19 - 08:30 - Housing Starts/Building Permits
Thu - Jan 20 - 08:30 - Initial Claims
Thu - Jan 20 - 10:00 - Existing Home Sales
Thu - Jan 20 - 10:00 - Leading Indicators
Thu - Jan 20 - 10:00 - Philadelphia Fed
Thu - Jan 20 - 11:00 - Crude Inventories
Charts of Interest: Tuesday and Thursday in separate post.
-----------------------------------------------------------------------------
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.
Learn More
