The S&P 500 ETF (SPY), Nasdaq 100 ETF (QQQ) and Russell 2000 ETF (IWM) all broke below their September lows on Monday. IWM led the market lower with a break below its early August lows. Small-caps have shown relative weakness for several months now and this remains a major drag on the broader market. We also saw a breakdown in the Consumer Discretionary SPDR (XLY) as this ETF moved below its September lows as well. Overall, a clear risk-off environment exists in the market right now and these trends simply accelerated on Monday. This means stocks, the Euro, junk bonds and oil are in bear mode, while US Treasuries and the Dollar are in bull mode. The moves are getting a bit extended short-term, but show no signs of reversing just yet. Despite a rise in the Dollar over the last two days, gold moved higher and may be distancing itself from its negative correlation to the Dollar. The first chart shows SPY with a ±7% decline the last four days. Even though the ETF is short-term oversold, there are no signs of firmness or support near current levels. Resistance is set at 118 for now. The TRIX moved below its signal line last week and remains in a clear downtrend.
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The 20+ year Bond ETF (TLT) surged to its September highs with a 2.49% move on Monday. Overbought securities just get more overbought and the oversold securities just get more oversold. Such is the nature of strong trends. Also note that operation Twist started on Monday. Key support is set in the 116 area.
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The US Dollar Fund (UUP) extended its gains with a move above the September high. Nothing but uptrend here. Key support is set in the 22 area. European Central Bank (ECB) chairman Trichet speaks today at 9AM ET and Bernanke is testifying before Congress today. Also note that the European Central Bank (ECB) meets on Thursday (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) took it on the chin with a move below the late September low. Oil continues to follow stocks lower. Oil is also under pressure from a strong Dollar. There is nothing but downtrend here.
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The Gold SPDR (GLD) broke above resistance with a surge above 160 on Monday. Even though there was no follow through, the gains and the breakout held. It will treated as bullish until proven otherwise. The 38.2% retracement around 166 marks the first target. A move below 156 would negate this breakout and put gold back in bear mode.
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Key Economic Reports:
Tue - Oct 04 - 10:00 - Factory Orders
Wed - Oct 05 - 07:00 - MBA Mortgage Index
Wed - Oct 05 - 07:30 - Challenger Job Cuts
Wed - Oct 05 - 08:15 - ADP Employment Change
Wed - Oct 05 - 10:00 - ISM Services Index
Wed - Oct 05 - 10:30 - Oil Inventories
Thu - Oct 06 - 08:30 - Jobless Claims
Fri - Oct 07 - 08:30 - Employment Reprot
Fri - Oct 07 - 15:00 - Consumer Credit
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.
