Stocks started the day weak with large-cap techs leading the way lower early Wednesday. QQQ opened with a move below 56.5 and was down some 1.7% at one point. However, the bulls showed their resilience as stocks rallied back by the close. QQQ returned to positive territory. Small-caps led the recovery with a 1.7% gain in IWM. The finance sector was one of the leading sectors as banks looked forward to another bailout. The consumer discretionary sector was one the clear laggards as weakness in retailers weighed. Relative weakness in retail not a good sign, but it is just one day for now.
SPY remains in an uptrend since early October. The ETF surged off the October lows with a strong advance the first two weeks and then started zigzagging higher. The ETF has a series of higher highs and higher lows working the last two weeks. There can be no downtrend until this series is broken. A rising channel as taken shape with the lower channel extension marking support in the 122 area. This support level is confirmed by the Wednesday morning reversal. The zigs and zags within this rising channel form the smaller swings. With the afternoon surge, the swing turned up as SPY broke the flag trendline. However, SPY did not follow through with a break above the minor resistance line put forth yesterday. Let's see how the bulls feel in the morning.
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The 20+ year Bond ETF (TLT) fell back as rumors of an EU plan emerged Wednesday afternoon. Remember, the devil is in the details. TLT surged above 114.5 on Tuesday, but fell back below this breakout level with the Wednesday afternoon decline. Trading within the two week range is quite choppy. Key resistance remains at 117 and a break above this level is needed to fully reverse the short-term downtrend.
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The US Dollar Fund (UUP) remains within a falling wedge as it consolidates around 21.5 the last three days. First resistance is set at 21.70. A move above this level would break the wedge trendline and exceed the Wednesday morning high. Key resistance remains at 21.90.
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The US Oil Fund (USO) declined sharply on Wednesday to correct the gains of the prior few days. USO surged from 32.5 to 36.5 (low to high) and was short-term overbought on Tuesday. Broken resistance and the early October trendline combine to mark first support in the 34-34.50 area.
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Even though the Dollar remained flat, the Gold SPDR (GLD) continued higher with a move above 167 on Wednesday. After a surge from 156 to 168 in five days, the ETF is getting short-term overbought. The broken resistance zone around 162-164 turns into the first support zone. For now, I will leave key support at 160.
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Key Economic Reports:
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.
