Stocks opened strong and finished strong with a broad advance on Monday. While it is still considered an oversold bounce within a bigger downtrend, there is room for further upside before resistance from broken support levels comes into play. SPY gapped up to form an island reversal over the last few days. There is a gap below 118.50 last Wednesday and a gap above 118.50 on Monday. While this pattern is technically bullish, I think that gaps have lost some of their luster because they have become so common. From a short-term perspective, chartists should at least respect the gap as bullish as long as it holds. SPY consolidated in the 119-120 area with a falling flag after this gap. This area marks resistance from the 38.2% retracement and pennant. A break above 120 would signal a continuation higher and target a move to the next resistance zone around 122-123. Anything is possible these days. RSI is also at resistance in the 50-60 zone. A break above 60 would turn momentum bullish. Note that SPY, QQQ and IWM are all at make-or-break levels. A failure at resistance and break below the Monday afternoon lows would provide the first clue that Monday's pop was fluke.
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Even though stocks opened strong and finished strong, the 20+ year Bond ETF (TLT) opened weak and finished strong. TLT opened below 119 and closed above 120.50. I would have expected TLT to stay down when stocks held their gains. On the price chart, broken resistance in the 118-119 area turned into support and held. The post-gap bounce reinforces support at 118 and I am elevating this level to key short-term support.
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The US Dollar Fund (UUP) opened sharply lower on rumors of a European debt deal. Despite a weak open, the greenback rallied and closed near the high for the day. Selling pressure did not continue after the gap and this is positive. There is a support level around 22.20 now. It is, however, quite a minor support level. The first significant support zone resides in the 21.90-22 area. RSI support is set in the 40-50 zone.
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I see two patterns developing in the US Oil Fund (USO). First, there is a sharp decline and then a rising flag (blue). This is a bearish setup. A break below 37 would signal a continuation lower and target further weakness to the 34.5-35 area. Also notice that RSI is in its resistance zone (50-60). Shorter-term, US surged above 38 on the open and then pulled back with a falling flag. A break above 38.10 would signal a continuation of this surge.
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The Gold SPDR (GLD) also has this bull flag/bear flag thing going. The bounce over the last few days formed a rising flag with support at 164. A break below this level signals a continuation of the prior decline (175-162). Within this bear flag, the ETF formed a smaller bull flag after yesterday's surge above 166. A tight falling consolidation formed and a break above flag resistance would signal a continuation higher. A lot may depend on stocks and the Dollar. Gold has been positively correlated with stocks and negatively correlated with the Dollar.
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Key Economic Reports:
Tue - Nov 29 - 09:00 - Case-Shiller 20-city Index
Tue - Nov 29 - 10:00 - Consumer Confidence
Wed - Nov 30 - 07:00 - MBA Mortgage Index
Wed - Nov 30 - 07:30 - Challenger Job Cuts
Wed - Nov 30 - 08:15 - ADP Employment Report
Wed - Nov 30 - 09:45 - Chicago PMI
Wed - Nov 30 - 10:00 - Pending Home Sales
Wed - Nov 30 - 10:30 – Oil Inventories
Wed - Nov 30 - 14:00 - Fed's Beige Book
Thu - Dec 01 - 08:30 - Jobless Claims
Thu - Dec 01 - 10:00 - ISM Index
Thu - Dec 01 - 10:00 - Construction Spending
Thu - Dec 01 - 15:00 - Auto/Truck Sales
Fri - Dec 02 - 08:30 – Employment Report
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.
