SPY Bounces off Retracement - USO Firms Near Breakout

It is a battle of wedges and trends for XLF. The ETF failed at resistance near 14.8 and broke the lower trend line of a pink rising wedge this week. There is, however, a smaller falling wedge taking shape in July. Also notice that the ETF formed an indecisive candlestick on Thursday. Even though this setup is potentially bullish, I think the bears have the edge as long as first resistance holds. A move above 14.60 would fill last week's gap down and break this level.



The S&P 500 ETF (SPY) shows the same pattern as XLF. SPY is zigzagging higher with a rising wedge since early June. The swing within this wedge is down since last week's gap down. SPY broke the lower trend line and first support with yesterday's open, but moved right back above this break in the afternoon. Even though this rebound may be enough to keep the big rising wedge alive, it is not enough to reverse the 6 day downswing. I am marking channel resistance at 134.80. A break above this level would end the short-term downtrend and call for a continuation of the medium-term uptrend. RSI is battling medium-term support at 40. The 5-period EMA of StochRSI broke above .60 to signal a short-term upturn in momentum. Let's see some follow through on the price chart before taking this momentum bounce seriously.




 


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No change. Even though US treasury bonds are clearly not undervalued and offer little yield, they continue to attract safe-haven buyers as Spanish bonds yields rise and the US economy stumbles. The 20+ Year T-Bond ETF (TLT) broke resistance with a surge above 128. The bigger trend was always up and this breakout turns the short-term trend bullish again. Also notice that the 10-year Treasury Yield ($TNX) broke support with a move lower last week. Strength in treasuries is negative for US stocks.


 
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No change. The US Dollar Fund (UUP) broke triangle resistance with a big surge and this breakout is holding. The Euro Currency Trust (FXE) broke triangle support at the same time. Broken resistance turns into the first significant support zone around 22.80. Strength in the Dollar suggests a flight-to-safety mentality (risk-off) and this is negative for stocks, oil and gold.



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For whatever reason, oil continued to firm in the breakout zone around 32 (Iran, supplies, jobless claims, global easing). After a sharp surge to 33, the US Oil Fund (USO) pulled back to the 32 area with a falling wedge. This is starting to look like a consolidation after an overbought situation. A break above 32.5 would be bullish for USO and signal a continuation of the prior surge. Also notice that RSI is holding support in the 40-50 zone.



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No change. Gold remains one whippy trade these days as the Gold SPDR (GLD) forms a large triangle over the last six weeks. The last two downswings formed falling wedge patterns. GLD formed a lower high after the prior breakout and the current wedge is approaching support from the late June low. Also note that GLD failed to hold the late May surge to 159 and the late June surge above 157. Even though there is a lot of support in the 150-151 area, the series of lower highs since early June shows underlying weakness. Also keep in mind that the trend since August is down.



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Key Reports and Events:   
                   
Fri - Jul 13 - 08:30 - Producer Price Index (PPI)             
Fri - Jul 13 - 09:55 - Michigan Sentiment    

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.