The moment of truth is drawing near. After a bounce the prior five days, the major index ETFs consolidated on Wednesday. DIA and SPY formed inside days to signal short-term indecision. Also note that rising flag patterns formed in DIA, SPY and IWM. A break below rising flag support levels would signal a continuation of the early April decline. Despite this bearish setup, traders should keep in mind that the medium-term and long-term trends are up and the six day trend is up because the flags are rising. This makes for a rather tricky situation that is compounded by the volatility of earnings season. With indecisive days on Wednesday, there is no change on the 60-minute chart for SPY. The bounce back above 139 retraced 50-61.80% of the prior decline and formed a possible ABC pattern. The pattern and retracement are typical for bounces within bigger downtrends. Also note that broken supports and the gap around 139 could offer resistance. A move below the trendline breakout at 138 would be the first sign of a bearish reversal. In the indicator window, RSI broke above 60 and is trending up. A break below 40 would turn this momentum oscillator bearish again.
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The 20+ Year T-Bond ETF (TLT) remains in an uptrend, which is negative for stocks and positive for the Dollar because it reinforces the risk-off trade. The channel trendline marks first support at 116. Key support remains at 114.5 for TLT and key resistance is set at 20.70 for the 10-year Treasury Yield ($TNX).
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The US Dollar Fund (UUP) surged in early April and then consolidated the last two weeks. Despite all the negatives coming out of Europe, the Dollar has yet to continue higher and UUP is not acting that bullish. A triangle is taking shape with support at 21.95 and resistance at 22.20. Watch these levels for the next directional signal.
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The bigger downtrend proved stronger than the flag breakout in the US Oil Fund (USO). The ETF hit its resistance zone and promptly pulled back towards Monday's low. With the bounce the last six days, the ETF formed a rising flag/wedge, similar to that seen in SPY. USO is trading right at the lower trendline now and further weakness would signal a continuation of the bigger downtrend. RSI failed at resistance and needs to break 65 to turn momentum bullish.
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No change. After a sharp decline in late February and early March, the decline in the Gold SPDR (GLD) slowed as the ETF zigzagged lower the last 5-6 weeks. A series of lower lows and lower highs has taken shape as the ETF oscillates around the 160-161 level. The most recent signal was the trendline break on Friday. The ETF continued below 160 Monday-Tuesday, but showed some resilience with a close above 160 on Tuesday. Follow through is needed before thinking bull though. First resistance is set just above 161 and key resistance at 164.
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Key Economic Reports:
Thu - Apr 19 - 08:30 - Initial Claims
Thu - Apr 19 - 10:00 - Existing Home Sales
Thu - Apr 19 - 10:00 - Philadelphia Fed
Thu - Apr 19 - 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.
