There is nothing to do now, but wait for the market's reaction to the employment report. The current swing for stocks remains up. Since early August, the S&P 500 ETF (SPY) has 11 swings that are at least 5 percent. The ETF started August with a plunge below 115 and moved back above this level with yesterday's close. The range from late August to early October extends from 123 to 107.5, which puts 115.25 in the middle. SPY is trading just above the mid point of its two month range. Basically, the ETF has gone nowhere. In reality, the ETF is all over the place with massive swings that last 3-7 days. 11 swings in eight weeks averages out to one swing every 3.63 days. Traders can either take these swings or sit back and wait for the market to calm down.
So how would one go about playing these swings? Furthermore, what can we use to identify support for the current upswing? After pouring through various indicators and techniques, I discovered that Tarzan-type traders could use the Raff Regression Channel to define the swings, set support/resistance and identify reversals. It is not a perfect indicator or system, but there is no such thing as perfection when the markets are concerned. The middle line of a Raff Regression Channel is a linear regression, which is the line of best fit. The upper and lower channels are based on the highest high or lowest low away from the linear regression. You can read more about The Raff Regression Channel in our
ChartSchool article. By basing the outer, and parallel, channel lines on the highest high or lowest low, these lines are dynamic and subject to change should volatility expand in the direction of the trend. The green lines shows upswings and the red lines show downswings. The dotted lines mark extensions for upswing support (green) and downswing resistance (red). Once these extensions are broken, a new Raff Regression Channel is started in the opposite direction. This channel starts from the most recent extreme and is adjusted for new price action. A green channel starts from the low and rises as higher highs form. A red channel starts from the high and extends lower as lower lows form. Tuesday's surge above 112 broke the red channel extension and this warranted the start of a green channel on Tuesday. This green channel was extended as SPY made new highs on Wednesday and Thursday. Should the close be on the high (or low) of the move, chartists can simply extend the most recent channel to the right (into the future) to see current support. This only works with the current channel because there is no new price action affecting the slope or width of the channel. Current support is set at 114.3, which is the lower trendline of the channel. Treat this technique as some food for thought when trying to catch the swings in this violent market. You can also see that this system is more sensitive than the TRIX.
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The 20+ year Bond ETF (TLT) is now hostage to the employment report. A better-than-expected report would be negative for bonds, while a worse-than-expected report would be positive. TLT is currently at support from the 61.80% retracement and early September trendline. Next support resides in the 116 area. Notice that IEF (indicator window) may be tracing out a small Double Top the last few weeks.
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The US Dollar Fund (UUP) is also at a moment-of-truth. The ETF retraced 61.80% of the prior surge with a falling flag this week. There is also support in this area from the lower trendline of a rising channel. A move above 22.4 would break flag resistance and call for a continuation of the bigger uptrend.
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The US Oil Fund (USO) blew through the Fibonacci cluster put forth on Thursday and is fast approaching a bigger resistance zone in the 32.5-33 area. Resistance here stems from broken supports and the late September high. Strength in global equities this week is putting a bid in oil. The swing is up with the Raff Regression Channel marking first support at 31.10.
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The Gold SPDR (GLD) got a bounce this week as the Dollar corrected. Overall, GLD remains within a triangle formation and is currently testing resistance. A breakout at 162.5 would be bullish for gold and argue for a move to the next resistance zone. Support is set at 155 and confirmed by the Raff Regression Channel. A break here would signal a continuation lower.
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Key Economic Reports:
Fri - Oct 07 - 08:30 - Employment Report
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.
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The 20+ year Bond ETF (TLT) is now hostage to the employment report. A better-than-expected report would be negative for bonds, while a worse-than-expected report would be positive. TLT is currently at support from the 61.80% retracement and early September trendline. Next support resides in the 116 area. Notice that IEF (indicator window) may be tracing out a small Double Top the last few weeks.
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The US Dollar Fund (UUP) is also at a moment-of-truth. The ETF retraced 61.80% of the prior surge with a falling flag this week. There is also support in this area from the lower trendline of a rising channel. A move above 22.4 would break flag resistance and call for a continuation of the bigger uptrend.
**************************************************************************
The US Oil Fund (USO) blew through the Fibonacci cluster put forth on Thursday and is fast approaching a bigger resistance zone in the 32.5-33 area. Resistance here stems from broken supports and the late September high. Strength in global equities this week is putting a bid in oil. The swing is up with the Raff Regression Channel marking first support at 31.10.
**************************************************************************
The Gold SPDR (GLD) got a bounce this week as the Dollar corrected. Overall, GLD remains within a triangle formation and is currently testing resistance. A breakout at 162.5 would be bullish for gold and argue for a move to the next resistance zone. Support is set at 155 and confirmed by the Raff Regression Channel. A break here would signal a continuation lower.
**************************************************************************
Key Economic Reports:
Fri - Oct 07 - 08:30 - Employment Report
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.
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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