With pre-market stock futures pointing to a sharply lower open, last week's breakouts will get their first test. To recap: the major index ETFs broke channel resistance with gaps and surges on Tuesday. These breakouts held as the gains extended into Friday. QQQ moved above its early July high, but IWM fell well short of its early July high and SPY fell just short. I remain concerned with relative weakness in small-caps as well as uninspiring breadth since mid June. The AD Lines and AD Volume Line remain well below their May highs. At what point should the bulls cry uncle (turn bearish).
A pullback is justified after last week's big move, but a pullback that negates last week's breakouts would be considered more than just a normal pullback. Keep in mind that this particular commentary is short-term oriented (1-8 weeks). The Market Message is more medium-term and long-term oriented (2-6 months). Short-term, I am watching the breakout areas to see if they hold. A move below broken resistance levels and support breaks in the key momentum indicators would be bearish. On the 60-minute chart, bearish momentum signals would come from a CCI(20) move below -20 or a Percent Price Oscillator (PPO) break into negative territory.
Concerns over the US debt deal and a possible downgrade from the rating agencies are weighing on Treasuries in pre-market trading. It is a double-edged sword here because weakness in stocks could actually boost demand for bonds, as could an 11th hour deal on the debt ceiling. The 20+ year Bond ETF (TLT) bounced off support around 95 with a falling wedge over the last week. Technically, a move above the wedge trendline would be the first signs that the five day slide was reversing and the early July advance is continuing.
The US Dollar Fund (UUP) is also taking a hit as money moves into other currencies, including gold and the Swiss Franc. However, the Dollar is up slightly versus the Euro in early trading. Keep in mind that the Euro makes up 57% of the UUP. Between the Dollar and the Euro, it is simply a contest of who is the least ugly. UUP broke support last week with a sharp decline that began on Wednesday. Broken support turns into resistance around 21.35-21.40 and this is the first level to watch.
Weakness in stocks will likely weigh on oil. The 12-Month US Oil Fund (USL) edged above the triangle trendline, but did not forge a convincing breakout as it stalled in the 45-45.5 area. Friday's low marks first support to watch for a failure at resistance. The mid July lows mark key support around 43.25.
The Gold SPDR (GLD) is moving higher in pre-market trading as gold remains a key currency alternative. On the price chart, GLD formed a triangle consolidation and broke triangle resistance with a surge on Friday. The ETF is set to open at new highs and this reinforces support in the 153.50 area.
Key Economic Reports:
Tue - Jul 26 - 09:00 - Case-Shiller Housing Index
Tue - Jul 26 - 10:00 - Consumer Confidence
Tue - Jul 26 - 10:00 - New Home Sales
Wed - Jul 27 - 07:00 - MBA Mortgage Index
Wed - Jul 27 - 08:30 - Durable Goods Orders
Wed - Jul 27 - 10:30 - Oil Inventories
Wed - Jul 27 - 14:00 - Fed Beige Book
Thu - Jul 28 - 08:30 - Jobless Claims
Fri - Jul 29 - 08:30 - GDP
Fri - Jul 29 - 09:45 - Chicago Purchasing Managers Index (PMI)
Fri - Jul 29 - 09:55 - Michigan Sentiment
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.
Concerns over the US debt deal and a possible downgrade from the rating agencies are weighing on Treasuries in pre-market trading. It is a double-edged sword here because weakness in stocks could actually boost demand for bonds, as could an 11th hour deal on the debt ceiling. The 20+ year Bond ETF (TLT) bounced off support around 95 with a falling wedge over the last week. Technically, a move above the wedge trendline would be the first signs that the five day slide was reversing and the early July advance is continuing.
The US Dollar Fund (UUP) is also taking a hit as money moves into other currencies, including gold and the Swiss Franc. However, the Dollar is up slightly versus the Euro in early trading. Keep in mind that the Euro makes up 57% of the UUP. Between the Dollar and the Euro, it is simply a contest of who is the least ugly. UUP broke support last week with a sharp decline that began on Wednesday. Broken support turns into resistance around 21.35-21.40 and this is the first level to watch.
Weakness in stocks will likely weigh on oil. The 12-Month US Oil Fund (USL) edged above the triangle trendline, but did not forge a convincing breakout as it stalled in the 45-45.5 area. Friday's low marks first support to watch for a failure at resistance. The mid July lows mark key support around 43.25.
The Gold SPDR (GLD) is moving higher in pre-market trading as gold remains a key currency alternative. On the price chart, GLD formed a triangle consolidation and broke triangle resistance with a surge on Friday. The ETF is set to open at new highs and this reinforces support in the 153.50 area.
Key Economic Reports:
Tue - Jul 26 - 09:00 - Case-Shiller Housing Index
Tue - Jul 26 - 10:00 - Consumer Confidence
Tue - Jul 26 - 10:00 - New Home Sales
Wed - Jul 27 - 07:00 - MBA Mortgage Index
Wed - Jul 27 - 08:30 - Durable Goods Orders
Wed - Jul 27 - 10:30 - Oil Inventories
Wed - Jul 27 - 14:00 - Fed Beige Book
Thu - Jul 28 - 08:30 - Jobless Claims
Fri - Jul 29 - 08:30 - GDP
Fri - Jul 29 - 09:45 - Chicago Purchasing Managers Index (PMI)
Fri - Jul 29 - 09:55 - Michigan Sentiment
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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