The Dollar broke resistance, the Euro moved lower and stocks gave up early gains with a rather sharp afternoon sell-off. Conditions remain ripe for a corrective period and stocks are showing signs of fatigue. In particular, Apple-less small-caps have been relatively weak since IWM peaked on February 3rd and sentiment has gotten a little too bullish lately. Perhaps all the market needs is a little push for a correction. I am not sure where this push will come from, but it could lead to a rather sharp 1-3 day pullback. I am not calling for a medium-term or long-term top here, just a corrective period. On the SPY chart, the ETF has been consolidating above 133.50 the last nine trading days. With a strong open and weak close, an outside reversal or bearish engulfing formed on the daily chart. Follow through below first support at 133.5 would set the corrective wheels in motion and we could see a move to the 131 area. RSI is holding just above support and a break below 40 would turn momentum short-term bearish.
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The 20+ Year T-Bond ETF (TLT) is between a rock and a hard place. The trend since 19-Dec is down, but the swing within this downtrend is up. However, the ETF is currently near the 61.80% retracement and stalling with another small consolidation. A break above Wednesday's high would keep the upswing in play and reinforce support around 117.40. Treasuries may be dependent on the Euro and stock market for direction. Declines in both would benefit TLT.
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The US Dollar Fund (UUP) is making a move as money moves out of the Euro, which accounts for 57% of the ETF. UUP surged the last four days and broke above the early February high. RSI broke above 60 and is now in the bull zone (40-80). Broken resistance in the 22.07-22.15 area turns into the first support zone. A sharp move back below 22.05 would negate this breakout. Note that stocks have been negatively correlated with the Dollar and treasuries have been positively correlated.
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Even though stocks were weak and the Dollar strong, the US Oil Fund (USO) extended its gain and closed above 39. There is a medium-term breakout in the works this week, but the ETF is getting short-term overbought after a run from 36.75 to 39.18 the last eight days. Broken resistance and the early February trendline combine to mark first support in the 38-38.5 area. RSI support is set at 40.
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Gold bulls should be concerned with strength in the Dollar and weakness in the stock market. For whatever reasons, gold is negatively correlated to the Dollar and positively correlated with the stock market. The Gold SPDR (GLD) remains in a downtrend with a falling flag taking shape this month. The ETF surged above 168 on the open Wednesday, but fell back and consolidated. Price action is quite whippy within the falling flag. I give the bulls an edge as long as support at 166 holds.
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Key Economic Reports:
Wed - Feb 15 - 07:00 - MBA Mortgage Index
Wed - Feb 15 - 08:30 - Empire State Manufacturing
Wed - Feb 15 - 09:15 - Industrial Production
Wed - Feb 15 - 10:00 - NAHB Housing Market Index
Wed - Feb 15 - 10:30 - Oil Inventories
Wed - Feb 15 - 14:00 - FOMC Minutes
Thu - Feb 16 - 08:30 - Jobless Claims
Thu - Feb 16 - 08:30 - Housing Starts Building Permits
Thu - Feb 16 - 08:30 - Producer Price Index (PPI)
Thu - Feb 16 - 10:00 - Philadelphia Fed
Fri - Feb 17 - 08:30 - Consumer Price Index (CPI)
Fri - Feb 17 - 10:00 - Leading Indicators
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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