Stocks continued their short-term uptrends with further strength on Tuesday and then fell sharply on Wednesday. This decline was not enough to reverse the short-term uptrend. With a modest bounce on Thursday, the major index ETFs established short-term support levels to watch going forward. On the S&P 500 ETF (SPY) chart, the ETF bounced in the 124.5-125 area. The Raff Regression Channel and trough mark support here. With the move to 126, the ETF has now retraced 61.80% of Wednesday's decline. This is the first area to watch for a potential lower high that could foreshadow a short-term trend reversal. A break below 124.5 would fully reverse the short-term uptrend. RSI held support in the 40-50 zone on Wednesday to keep momentum bullish. A break below this zone would turn RSI bearish.
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The 20+ Year T-Bond ETF (TLT) surged on Wednesday as stocks and the Euro fell sharply. The Euro seems to be the biggest driver for the Treasury market. TLT declines when the Euro firms and rises when the Euro falls. Even though the swings have been quite wild, this surge established a higher low to keep the bigger uptrend alive.
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The US Dollar Fund (UUP) bounced along the 22.30 area and then surged above resistance with a big move on Wednesday. This breakout is Dollar bullish and Euro bearish as long as it holds. There is now a support zone in the 22.3-22.4 area marked by recent lows and the November trendline. RSI held support in the 40-50 zone throughout the uptrend and momentum remains bullish as long as RSI holds 40.
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The US Oil Fund (USO) pulled back sharply with a decline back to 38 on Wednesday. Weakness in the stock market and strength in the Dollar weighed on oil. Short-term swings in oil continue to be dominated by these two. A falling wedge formed Wednesday and the ETF broke wedge resistance with a bounce on Thursday. This bounce established support around 38. Also notice that RSI held support around 40. A move below the Wednesday lows in both would reverse the short-term uptrend.
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Stocks and gold began a serious divergence on December 20th, which is when stocks surged and gold continued its decline. Even weakness in the Dollar did not help because the Dollar is below its mid December high. The Gold SPDR (GLD) is simply out of favor right now. GLD broke support at 165 on Wednesday and continued sharply lower. Broken support and the December trendline mark first resistance in the 152 area. Key resistance is set at 158.
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Key Economic Reports:
Fri - Dec 30 - 10:00 – None – Happy New Year!
Tue - Jan 03 - 10:00 - ISM Manufacturing Index
Tue - Jan 03 - 10:00 - Construction Spending
Tue - Jan 03 - 14:00 - FOMC Minutes
Wed - Jan 04 - 07:00 - MBA Mortgage Index
Wed - Jan 04 - 10:00 - Factory Orders
Wed - Jan 04 - 14:00 - Auto/Truck Sales
Thu - Jan 05 - 07:30 - Challenger Job Cuts
Thu - Jan 05 - 08:15 - ADP Employment Report
Thu - Jan 05 - 08:30 - Jobless Claims
Thu - Jan 05 - 10:00 - ISM Services Index
Thu - Jan 05 - 11:00 - Oil Inventories
Fri - Jan 06 - 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.
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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