The first trading day of the month produced a relatively modest gain in the S&P 500 ETF, but big gains in the Russell 2000 ETF and S&P MidCap 400 SPDR. Stocks gapped up on the open and then consolidated above their gaps. Even though there was not much follow through after the opening gaps, these gaps did ultimately hold and should be considered more bullish than bearish. Also note that relative strength from small and mid-caps is positive. Yesterday's moves were enough to reinforce short-term support levels that define the short-term uptrend, which is now in its seventh week. I remain concerned with overbought conditions and strange happenings in the intermarket arena. Stocks and treasuries have been positively correlated the last two weeks, while stocks and oil have been negatively correlated. Normally stocks and treasuries are negatively correlated, while oil and stocks are positively correlated. Despite these abnormal correlations, stocks have yet to break down and the short-term uptrends have yet to reverse. The S&P 500 ETF (SPY) broke flag resistance on Tuesday morning and extended its gains on Wednesday. This surge reinforces key resistance at 130. A move below this level and an RSI break below 40 would reverse the short-term uptrend. Those looking for a quicker signal can watch the gap/breakout level at 131. A move back below this level would fill the gap and negate the flag breakout. A little caution is advised because it is very possible that stocks move into a trading range type correction instead of a pullback type correction.
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Treasuries finally fell back as stocks surged on Wednesday. Nevertheless, the 20+ Year T-Bond ETF (TLT) is trading well above its late January low and showing a sizable gain the last eight days. Broken resistance turns first support at 118.50. Today's economic reports and Friday's employment report could tip the balance for treasuries. Strong numbers would be negative and push treasuries lower. Weak numbers would be positive and push treasuries higher.
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The US Dollar Fund (UUP) declined along with treasuries on Wednesday. This means the Euro rose and money was in risk-on mode. The overall trend remains down with the Raff Regression Channel and this week's highs marking resistance in the 22.20 area. RSI resistance remains in the 50-60 zone.
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The US Oil Fund (USO) remained under pressure and hit a new low for the year. Stocks are trading at their highs for the year, but oil is trading at its lows. Go figure. This is an abnormal situation because stocks and oil are usually positively correlated. In any case, the chart shows a series of lower lows and lower highs extending the last seven weeks. Key resistance remains in the 39 area. RSI has hit resistance in the 50-60 zone since mid January and momentum remains in bear mode.
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No change. The Gold SPDR (GLD) is up over 13% from its late December low (±149). Even though the ETF is overbought, there are simply no signs of weakness. GLD surged above 169 last week, held its gains and edged higher the last 4-5 days. As noted last week, gold is the un-currency and continues to attract money as an alternative to the Euro and Dollar. The lows of the last few days mark first support at 167. Key support remains at 160 for now, but will likely be raised in the coming days.
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Key Economic Reports:
Wed - Feb 01 - 07:00 - MBA Mortgage Index
Wed - Feb 01 - 08:15 - ADP Employment Report
Wed - Feb 01 - 10:00 - ISM Manufacturing Index
Wed - Feb 01 - 10:00 - Construction Spending
Wed - Feb 01 - 10:30 - Oil Inventories
Wed - Feb 01 - 14:00 – Auto/Truck Sales
Thu - Feb 02 - 07:30 - Challenger Job Cuts
Thu - Feb 02 - 08:30 - Jobless Claims
Fri - Feb 03 - 08:30 – Employment Report
Fri - Feb 03 - 10:00 - Factory Orders
Fri - Feb 03 - 10:00 - ISM Services
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.
