Techs Firm as XLK Forms Harami in Retracement Zone

What could upset the current downtrend? First, note that stocks were short-term oversold after Friday's decline and managed to firm on Monday. Second, note that governments in the EU and US will do everything they can to prevent a meltdown. Even though government action is almost always behind the curve, don't be surprised to see stocks surge after some big announcement in the coming days or weeks. I would not be surprised to see EU leaders announce a Eurozone banking guarantee. This would clearly benefit the finance sector.

Elsewhere, the Technology SPDR (XLK) held up relatively well on Monday with a harami taking shape in a Fibonacci zone. The decline since early April retraced 50-61.80% of the January-April advance. A harami forms when the candlestick body is within the body of the prior candle. This signals indecision that can sometimes foreshadow a short-term reversal (oversold bounce). The Price Relative (XLK:SPY ratio) shows XLK performance flattening out in May and turning up the last seven days.



There is not much change in the overall picture. Treasuries are overbought, stocks are oversold, commodities are oversold, gold broke short-term resistance and the Dollar is consolidating after a big run. Some sort of reversion to the mean is possible, but timing these reversions is a challenge. Oversold bounces within a downtrend and overbought pullbacks within an uptrend are difficult to time. Both are counter to the bigger trend and the bigger trend can reassert itself at anytime.



On the 60-minute chart, the S&P 500 ETF (SPY) broke rising flag support with a sharp decline and this support break turns into first resistance around 131. After a 4% decline the prior six days, the ETF is already short-term oversold. Nevertheless, any strength would be deemed an oversold bounce within bigger downtrends. The flag high at 134 marks key resistance for now.







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No change. The 20+ Year T-Bond ETF (TLT) surged above 130 and closed at a 52-week high on Friday. It is simply a runaway train right now as treasuries benefit from a perfect storm. EU problems are pushing money into relative safe-havens and the two month run of worse-than-expected economic reports means more easing on the horizon. On the price chart, broken resistance remains first support in the 124 area and key support is set around 122.



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No change. The US Dollar Fund (UUP) was up 5% in five weeks and remains in a strong uptrend. Even though there may be a pullback in UUP, selling pressure could be limited until the Greek elections on 17-June and possibly until the EU summit at the end of June. Regardless of the upcoming events, the fate of the Euro rests with Germany and Angela Merkel. Remember the golden rule? She who has the gold (money) makes the rules. On the price chart, UUP is trading well above first support in the 22.70 area. Key support remains at 22.40 for now.


 
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No change. Oil continues to be hammered by a rising Dollar, falling stock market and surging treasury market. A strong Dollar is generally negative for commodities because many are priced in Dollars. A falling stock market points to a slowing economy and weakening demand for energy products. The surge in treasuries points to disinflation or perhaps even deflation. Even so, USO is quite oversold and trading at the lower trendline of a falling channel. This may give way to an oversold bounce, but not a lasting bottom.



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No change. The Gold SPDR (GLD) caught a big bid and broke above resistance from the mid May highs. This breakout reinforces support and should be considered bullish as long as it holds. A move back below 153 would negate this breakout and call for a reassessment. RSI broke above 60 for the first time since late February. This means RSI confirmed the breakout in GLD and momentum is bullish. The 50-60 zone acts as RSI resistance in a downtrend and I set RSI at 40-period because this setting conforms with the downtrend in GLD. In other words, 40-period RSI did not break above resistance at 60 in late March, early April, mid April, late April and mid May (blue arrows). Friday's move above 60 is RSI bullish.



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Key Economic Reports:   
                   
Tue - Jun 05 - 10:00 – G7 Finance Ministers Conf-Call
Tue - Jun 05 - 10:00 - ISM Services    
Wed - Jun 06 - 07:00 - MBA Mortgage Index            
Wed - Jun 06 - 10:30 - Oil Inventories        
Wed - Jun 06 - 14:00 - Fed Beige Book    
Thu - Jun 07 - 08:30 - Jobless Claims        
Sun - Jun 04 - 10:00 – Greek Holiday
Sun - Jun 17 - 10:00 – Greek Elections
Sun - Jun 28 - 10:00 – 2-day EU Summit

Charts of Interest:    Tuesday and Thursday

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.