Despite a pop, drop and pop on Thursday, the short-term trend for stocks remains down. SPY opened above 117, but these gains did not last long as the ETF quickly dropped below 115. Selling pressure was actually pretty intense during the afternoon selloff. Even so, most of the losses were erased with a surge from 114 to 116 in the final hour. Actually, it was the final forty minutes. SPY still remains within a falling flag or channel. I am resetting resistance at 117 and it would take another move above this level to reverse the downtrend. The TRIX rolled over and moved below its signal line at 12 noon.
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The 20+ year Bond ETF (TLT) got a bounce as the stock market swooned. TLT broke above resistance at 118 and pulled back as stocks surged in the final hour. While stocks have a bearish bias overall, Treasuries have a bullish bias overall. Thursday's breakout reinforces support in the 116 area.
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The US Dollar Fund (UUP) has an overall bullish bias and the Euro Currency Trust (FXE) has a bearish bias. UUP broke above resistance with a surge last week and pulled back this week. With a few bounces, UUP established support in the 21.95-22 area. This week's lows are the first to watch for signs of a deeper pullback. Weakness in stocks and strength in bonds favors the risk-off trade and this is bullish for the greenback. Also note that the European Central Bank (ECB) meets next week (Oct 6th) for its policy statement. Economic weakness and a fragile financial system could give way to a rate cut that would further weigh on the Euro (benefit the Dollar).
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The US Oil Fund (USO) bounced along with the stock market, but remains in a downtrend overall. The bias here is clearly bearish. USL broke down last week and the bounce back to broken resistance is considered an oversold bounce within a bigger downtrend. Also note resistance from the 50-61.80% retracement. Further weakness in stocks would favor the risk-off trade and this is bearish for oil.
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The Gold SPDR (GLD) remains at a very interesting juncture. The ETF stabilized just above its prior low and a break above yesterday's high would be the first sign of strength. Also note that GLD held firm even as the Dollar surged from noon to 2PM on Thursday. Although gold did surge as the Dollar fell in the final hour. Nevertheless, gold may at some point ignore Dollar strength and move to the beat of a different drummer.
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Key Economic Reports:
Fri - Sep 30 - 08:30 - Personal Income & Spending
Fri - Sep 30 - 09:45 - Chicago PMI
Fri - Sep 30 - 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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