Stocks have been overbought for weeks, but the uptrend just keeps extending. SPY is a classic example of an index ETF becoming overbought and remaining overbought. The ETF broke resistance on 19-Dec to start the current uptrend, which is some nine weeks old. SPY was up over 7% in mid January, which could be considered overbought. However, SPY just continued to march higher and is now up over 12% in nine weeks. Even though the ETF is still overbought and ripe for a correction, we have yet to see a support break or sustained selling pressure. Broken resistance and the 3-Feb gap turn into the first support zone around 133-134. This level held the last two weeks as SPY edged higher with a zigzag above 136. RSI moved above 60 on 19-Dec and has held its bull zone (40-80) for nine weeks. This uptrend remains in place until SPY breaks 133 and RSI breaks 40.
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Overall, the 20+ Year T-Bond ETF (TLT) remains in a downtrend since 19-Dec with a big zigzag lower. The last upswing fell well short of the prior high with a reversal at the 61.80% retracement mark. TLT broke first support at 117.40 to continue the downtrend. Strength in the Euro on Monday could propel the risk-off trade on Tuesday, which would be negative for treasuries. Also note that surging oil could be stoking inflation and this is also negative for treasuries. Key resistance is now set at 118.50.
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The US Dollar Fund (UUP) took a hit on Monday as EU ministers approved another aid trance for Greece. This lifted the Euro, but the lift could be temporary because Euro-Dollar is flat early Tuesday. UUP broke resistance with a surge above 22.15, but a rising flag evolved and the ETF broke flag support on Friday. It is a tough call and I think we need to judge price action after the open today. UUP could find support near the lows from late January to early February. Firmness and a move back above 22.15 would be bullish.
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Oil continues to surge with Brent Crude leading the global charge. Brent moved above $120 on Monday and WTI Crude surged above $105. On the price chart, the US Oil Fund (USO) broke resistance with a surge from 36.75 to 39.75 over the last three weeks. Note that the decline from early January to early February looks like a falling flag on the daily chart. The breakout at 38.50 signals a continuation of the December advance and broken resistance turns first support. RSI support is set at 40.
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Gold remains stuck in a rut. The ETF surged from late December to early February and then moved into a consolidation pattern. This slight decline looks like a falling flag, which is a bullish continuation pattern. GLD surged above 168 last week, but fell back into its smaller consolidation. Even though the falling flag is potentially bullish, GLD has traded closer to support the last six days and buying pressure does not look that strong. A break below 166 would be short-term bearish and argue for a deeper correction, possibly back to the 162 area.
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Key Economic Reports:
Wed - Feb 22 - 07:00 - MBA Mortgage Index
Wed - Feb 22 - 10:00 - Existing Home Sales
Thu - Feb 23 - 08:30 - Jobless Claims
Thu - Feb 23 - 11:00 - Oil Inventories
Fri - Feb 24 - 09:55 - Michigan Sentiment
Fri - Feb 24 - 10:00 - New Home Sales
Wed - Feb 29 – 08:00 - Second LTRO round for EU Banks
Wed – Feb 29 – 08:00 – Italian 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.
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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