Art's Charts

Bernanke Makes Stocks the Only Game in Town

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In the FOMC policy statement, Bernanke signaled that the Fed is prepared to leave interest rates near zero until at least mid 2013. Say what? Bernanke must have one heck of a crystal ball to forecast interest rates so far in advance. The prospect of low rates just reinforces the Fed's view of a weak economy. Also note that there were two dissenters on the FOMC. In any case, the prospects of perpetually low interest rates pushed money into stocks because stocks are the only place investors can expect a positive return. Forget about money market, savings deposits or bonds. Despite the big bounce in stocks, the short-term trends are still down. At this point, I just consider this an oversold bounce. Volatility remains high as the Dow swung over 600 points from its low to its close. There is a big brawl raging between bulls and bears for the short-term trend. Getting in the middle of such a brawl is a dangerous game. For the major index ETFs, I am simply marking key retracement zones for potential support. The 38.2% retracement marks the first resistance level (~120) to watch on SPY. We could see resistance here and another test of the lows.

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It was a wild day in the bond market as well. The 20+ year Bond ETF (TLT) surged above 109 intraday, but closed below 106 as stocks surged in the final hour of trading. TLT remains in an uptrend, but bonds would be vulnerable if stocks continue to rally. I am marking first support around 102. Also note that the Euro turned up and is on the verge of a breakout, which would also weigh on bonds.   

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The US Dollar Fund (UUP) got hit hard after the Fed statement on Tuesday. This is hardly surprising because the Fed has all but abandoned a strong Dollar policy. Continued low interest rates and easy money are bearish for the greenback. UUP broke below the late July trendline and hit support at 21.03 in the afternoon. A break down looks likely with resistance at 21.30. Be careful here. The Euro is still the next ugliest currency out there.

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The 12-Month US Oil Fund (USL) remains in the same boat as stocks. After becoming oversold, USL bounced back above 37 on Tuesday. At this point, I will just put on the Fibonacci Retracements Tool to mark potential resistance levels for this oversold bounce. Low interest rates do not guarantee economic growth, which is necessary for a pick up in oil demand.

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Gold remains overbought, but still the only bull game in town (outside the Yen and Swissie).  The Gold SPDR (GLD) is overbought after another big move, which could give way to choppy trading in the coming days. Key support remains at 159.

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Key Economic Reports:
           
Wed - Aug 10 - 07:00 - MBA Mortgage Index    
Wed - Aug 10 - 10:30 - Oil Inventories
Thu - Aug 11 - 08:30 - Jobless Claims
Fri - Aug 12 - 08:30 - Retail Sales
Fri - Aug 12 - 09:55 - Michigan Sentiment   
Fri - Aug 12 - 10:00 - Business 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.
Arthur Hill
About the author: , 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
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