Stocks got an oversold bounce with small-caps, materials and energy leading the way on Friday. Despite this bounce, these three are lagging the broader market overall, which means this is a case of the worst hit groups getting the best bounce. Relative weakness in small-caps and the deterioration in breadth remains a concern for the stock market. Even though the trends since 19-Dec remain up, relative weakness in small-caps could be a leading indication that we are on the cusp of corrective period. Corrections can evolve as pullbacks that retrace a portion of the prior advance, sideways consolidations or a combination of the two. On the 60-minute chart, the S&P 500 ETF (SPY) peaked above 141 on Monday and then worked its way lower the rest of the week. A falling flag of sorts could be forming with broken support turning first resistance at 140. A move above this level would break falling flag resistance and signal a continuation higher. Barring such a breakout, broken resistance and the 50-61.80% retracements mark the next support zone for this correction.
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Treasuries remain stubbornly strong. Perhaps the slowdown in China and overbought conditions in US stocks are putting a bid into treasuries. The 20+ Year T-Bond ETF (TLT) broke resistance at 112, consolidated with a small flat flag and continued higher. Broken resistance and the Fibonacci clusters mark the next resistance zone in the 114.5-115 area. The flag lows mark support at 111.90.
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The US Dollar Fund (UUP) broke rising flag support and declined to the 61.80% retracement line on Friday. The trend since mid March is down and this flag break signals a continuation lower. I am marking resistance at 22.15. A move above this level would break the mid March trendline and negate the flag break. RSI resistance remains at 60 and a break above this level would confirm a bullish breakout in UUP.
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After a big surge in February, the US Oil Fund (USO) corrected with a slight downtrend the last four weeks. On the daily chart, this pattern looks like a falling flag, which is a bullish correction. However, the correction does not end until there is a decisive break above 41.50 in USO and 65 in RSI. Until such a break, further weakness or flat trading is expected.
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The Gold SPDR (GLD) continues to zigzag lower with a series of lower lows and lower highs this month. After a move to 158 last week, the ETF rebounded with a strong move to resistance on Friday. Broken support and last Monday's peak mark resistance here. Follow through and a breakout would be bullish for bullion. The Silver Trust (SLV) is shown in the indicator window with a falling wedge and resistance at 43.
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Key Economic Reports:
Mon - Mar 26 - 10:00 - Pending Home Sales
Tue - Mar 27 - 09:00 - Case-Shiller 20-city Home Index
Tue - Mar 27 - 10:00 - Consumer Confidence
Wed - Mar 28 - 07:00 - MBA Mortgage Index
Wed - Mar 28 - 08:30 - Durable Orders
Wed - Mar 28 - 10:30 - Oil Inventories
Thu - Mar 29 - 08:30 - Jobless Claims
Thu - Mar 29 - 08:30 - GDP
Fri - Mar 30 - 08:30 - Personal Income & Spending
Fri - Mar 30 - 09:45 - Chicago PMI
Fri - Mar 30 - 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.
