Do yourself a favor. Don't read about the EU summit. As Mickey Blue Eyes might say: Fuggedaboutit! Focus on the price charts. All known information is reflected in the charts. In fact, there is also likely a little bit of unknown information in the charts as well. Stocks fell sharply on Tuesday. Worse-than-expected earnings from 3M (MMM) and Cummins (CUM) weighed on the market and the industrial sector. Even though the short-term swing reversed down, the bigger swing (since early October) remains up. SPY surged in early October and then started zigzagging higher the last two weeks. There is a clear series of rising peaks and rising troughs. I am setting key support at 121. A move below this level would break the end point of the Raff Regression Channel. Within this rising channel, the shorter swing is down after the support break at 124.40 on the open. A smaller channel has been drawn with resistance marked just below 125. A move above this level would reverse this smaller downswing. RSI move below 50 to turn momentum bearish. A move above 50 and above the 10-day SMA is needed to reverse this signal.
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The 20+ year Bond ETF (TLT) failed to hold its support break and surged above first resistance at 114.50 on Tuesday. RSI also broke above 50 to turn momentum bullish. Treasuries are attracting money as a possible safe-haven to EU bonds. Also note that the Fed is buying long-term Treasuries. TLT has yet to break resistance at 117, but a challenge looks inevitable after Tuesday's big move.
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Is the Dollar next? The Euro is holding up surprisingly well considering the news out of the EU, which, of course, I do not read! This is the problem with news. Even if a move does not make sense, don't forget that the markets can remain irrational longer than we can remain solvent. The US Dollar Fund (UUP) remains within a falling wedge. First resistance is set just above 21.70 and key resistance is at 21.90.
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The US Oil Fund (USO) surged again on Tuesday morning, sold off near the close and ended the day with a modest gain. The swing is clearly up, but USO is overbought and ripe for a correction. It is hard to estimate support with such a sharp swing. The Raff Regression Channel defines the swing pretty well. Instead of extending the lower trendline, I am simply marking upswing support based on the end of the lower line (35.25). This is another way to use the Raff Regression Channel to estimate support or resistance.
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Gold and Treasuries provided the most impressive moves on Tuesday. The Gold SPDR (GLD) broke resistance at 162 with a huge move in the morning. This move started around 10AM. The breakout is bullish and the ETF even exceeded its mid October highs. Also note that gold surged without a big drop in the Dollar. Gold is getting a mind of its own. A breakout like this should hold. A move below 160 would totally negate the breakout and put the bears back in play.
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Key Economic Reports:
Wed - Oct 26 - 07:00 - MBA Mortgage Index
Wed - Oct 26 - 08:30 - Durable Orders
Wed - Oct 26 - 10:00 - New Home Sales
Wed - Oct 26 - 10:30 - Oil Inventories
Wed - Oct 26 - 10:30 - EU Summit II
Thu - Oct 27 - 08:30 - Jobless Claims
Thu - Oct 27 - 08:30 - Advance GDP Q3
Thu - Oct 27 - 10:00 - Pending Home Sales
Fri - Oct 28 - 08:30 - Personal Income/Spending
Fri - Oct 28 - 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.
