The intermarket arena continues to heat up as the Euro Currency Trust (FXE) breaks resistance and the Gold SPDR (GLD) forms a bull wedge. As noted yesterday, the Euro broke support in early January, but this support break failed to hold and the ETF rallied all the way back to its December highs. The combination of a failed support break and sharp rally to resistance shows some serious strength. FXE broke above resistance briefly on Tuesday and then fell back into a consolidation. The Euro is up rather sharply in pre-market trading on Wednesday. Should these gains hold into the US open, FXE will surge through resistance for a breakout.
Further strength in the Euro translates into Dollar weakness, which may buoy gold. The Gold SPDR bounced back above broken support for a failed support break (bear trap?). After a morning surge above 133.5, the ETF pulled back with a falling wedge. This is akin to a falling flag, which is a bullish continuation pattern. A break above flag resistance would signal a continuation higher and target a resistance challenge around 135.5.
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. Stocks are overbought and sentiment is excessively bullish, but these are "bear watch" indicators. The "bear warning" indicators, such as trend and breadth, remain firmly bullish. 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:
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.
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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.
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. Stocks are overbought and sentiment is excessively bullish, but these are "bear watch" indicators. The "bear warning" indicators, such as trend and breadth, remain firmly bullish. 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:
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.
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