Rumors that Standard & Poor's was going to downgrade the debt rating for several EU countries sent stocks sharply lower on the open Friday morning. Stocks remained down as rumors swirled, but did not add to their losses. The news finally hit at 3PM ET and stocks edged higher in the final hour. This was a non-event. First, the downgrade was expected. The only surprise might have been the timing, which was earlier than thought. Second, the big rating agencies, especially S&P and Moody's, have always been behind the curve. Notice that French bond yields and EU stocks actually advanced on Monday. Moreover, EU and Asian stocks are up early this morning and US futures are pointing to a sharply higher open. We best stick with the information on the charts. The S&P 500 ETF (SPY) remains in a clear uptrend on the 60-minute chart. Even though this advance is getting overbought and the recent surge in Treasuries is a concern, there are simply no signs of significant selling pressure. This uptrend may seem wobbly, but SPY continues to forge higher highs and higher lows. Broken resistance in the 128.3 area turned into support and held on Friday. I extended the Raff Regression Channel to Thursday's close at 129.51. The channel and last week's lows combine to mark a support zone. I am setting key support at 127. RSI dipped into the 40-50 zone as SPY flattened last week. A break below 40 would be the first negative sign for momentum.
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The 20+ Year T-Bond ETF (TLT) surged back to its late December high with a move to 121.5 on Friday. Weakness in stocks and the EU debt downgrade pushed money into safe-haven treasuries. Flash forward to this morning and the markets are pushing up stocks and the Euro early Tuesday. Strength in these two would be negative for TLT, especially with the ETF near resistance. Uptrend support is set at 119 with the Raff Regression Channel.
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The US Dollar Fund (UUP) surged off support for the second time last week. This move reinforces support at 22.55, which is marked by broken resistance. Despite Friday's bounce, support will likely be tested again today as the Euro strengthens following the successful French bond auction. A break below support at 22.55 would be short-term bearish, but still within the confines of a bigger uptrend. RSI support remains at 40.
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The US Oil Fund (USO) broke support on Thursday, but firmed on Friday. Despite this short-term support break, I think the bigger trend remains up and strength in the stock market is bullish for oil. Also note that the late December lows mark potential support in the 38 area. A move above 38.25 would trigger the first sign of a bounce.
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Gold and the S&P 500 continue to move together. Stock futures are higher this morning and gold is trading higher in Asia and Europe. The Gold SPDR (GLD) broke resistance at 158 and broken resistance turned support as the ETF formed a falling flag of sorts. Support is holding and a break above flag resistance would signal a continuation of this uptrend.
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Key Economic Reports:
Tue - Jan 17 - 08:30 - Empire Manufacturing
Wed - Jan 18 - 07:00 - MBA Mortgage Index
Wed - Jan 18 - 08:30 - Producer Price Index (PPI)
Wed - Jan 18 - 09:15 - Industrial Production
Thu - Jan 19 - 08:30 - Jobless Claims
Thu - Jan 19 - 08:30 - Consumer Price Index (CPI)
Thu - Jan 19 - 08:30 - Housing Starts/Building Permits
Thu - Jan 19 - 10:00 - Philadelphia Fed
Thu - Jan 19 - 11:00 - Oil Inventories
Fri - Jan 20 - 10:00 - Existing Home Sales
Mon - Jan 23 – 08:00 – EU Finance Ministers Meeting
Mon - Jan 30 – 08:00 – EU Heads of State Meeting
Mon - Jan 30 – 08:00 – Italian Medium and Long Term Bond Auction
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.
