Stocks surged on the open and then moved into a holding pattern the rest of the day. There was no upside follow through after the opening surge, but stocks held their gains and selling pressure was relatively muted. All sectors were up with materials, finance and industrials leading the way. The consumer discretionary and technology sectors, however, posted rather paltry gains (+.65% and +.35% respectively). On the S&P 500 ETF (SPY) chart, the ETF opened above last week's high and held above 129 the entire day. Those with a bearish bias will point to lack of follow through. Those with a bullish bias will point to the ability to hold gains. At this point, the gap is holding and there are no signs of material weakness on this chart. Broken resistance and the Friday-Monday consolidation mark the first support zone in the 127.5-128 area. I am going to raise key support to 126.5, which is marked by last week's low and the Raff Regression Channel. RSI support remains at 40.
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The 20+ Year T-Bond ETF (TLT) moved below rising flag support, but did not break below the key support zone, which is marked by the late December and early January lows. Treasuries will likely be dependent on the stock market and Euro the rest of the week. Continued strength in stocks and a bounce in the Euro would be bearish for TLT. A reversal in stocks and continued weakness in the Euro would be bullish. I am watching resistance at 119.10 for a breakout that would signal a successful support test and open the door to higher prices.
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The US Dollar Fund (UUP) pulled back to broken resistance and firmed. This is the first area to expect support. Also notice that RSI moved to around 50, which is the top of the support zone (40-50). The trendline extending down from last week's high marks first resistance at 22.65. A break above this level would provide the first sign that the uptrend is resuming. There are quite a few Euro-moving events and meetings the next two days. Merkel is meeting with Italian Prime Minister Monti today. Sarkozy is meeting with IMF director Lagarde. Germany will auction 4 billion Euros worth of debt today, while Spain and Italy will action some 17 billion Euros worth of debt on Thursday.
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The US Oil Fund (USO) reversed at the 61.80% retracement and surged above wedge resistance on Tuesday. This move reinforces support in the 38.5-38.75 area. Failure to hold the wedge breakout and a move below this level would reverse the three week uptrend. RSI support remains at 40.
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The Gold SPDR (GLD) followed the stock market higher with a surge above its late December highs. The ETF broke falling wedge resistance in the process and is now up some 6.5% since December 29th. Even though GLD is short-term overbought, the trend here is clearly up. The lows since January 4th mark a support zone in the 155-156 area.
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Key Economic Reports:
Wed - Jan 11 - 07:00 - MBA Mortgage Purchase Index
Wed - Jan 11 - 10:30 - Oil Inventories
Wed - Jan 11 - 14:00 - Fed Beige Book
Thu - Jan 12 - 08:30 - Jobless Claims
Thu - Jan 12 - 08:30 – Spain and Italy Bond Auction
Thu - Jan 12 - 08:30 - Retail Sales
Thu - Jan 12 - 10:00 - Business Inventories
Fri - Jan 13 - 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.
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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