SPY Breaks Channel Resistance - GLD Breaks Wedge Trendline

The S&P 500 ETF (SPY) formed a higher low on Friday and broke above channel resistance with a strong surge. This move keeps the bigger uptrend alive, which has been in force since early June. Even though I think this is a corrective rally that is retracing a portion of the April-May decline, the six week trend is clearly up as long as the July low holds. Shorter term, a strong breakout should hold and I will watch the channel breakout for early signs of a weakness. A move back below 134 would signal a breakout failure and this could set the stage for a bigger support break at 132.50. The indicator window shows 40-period RSI holding the 40 level throughout the six week uptrend. I choose 40 because this look-back period defines the uptrend by holding 40 throughout. A move below 40 would turn momentum bearish.







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Even though SPY broke out and the finance sector led, this advance and breakout are suspect as long as treasuries remain strong. Treasuries are not undervalued and offer a negative real return. Strength, therefore, can only be attributed to fear, such as fear of economic weakness, worse-than-expected earnings and continuing problems in Europe. The 20+ Year T-Bond ETF (TLT) broke out on Monday and held its breakout throughout the week. Only a move back below broken resistance would suggest a failed breakout. For now, TLT remains in bull mode and I consider this bearish for stocks.



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Strength in the Dollar and weakness in the Euro is also cause for concern in the stock market. The US Dollar Fund (UUP) broke triangle resistance and the Euro Currency Trust (FXE) broke triangle support. These breaks are holding. It would take a move back below 22.77 to negate the breakout in UUP. Until such an event, the Dollar is in bull mode and this is negative for stocks.



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Oil caught a bid on Friday as the Euro firmed and stocks moved sharply higher. The US Oil Fund (USO) broke falling wedge resistance with a surge above 32.50. Unfortunately, this breakout could be dependent on stocks and the Euro, both of which are weaker in early trading on Monday. Also note that the Shanghai Composite ($SSEC) was down sharply today. A move below 32 would negate the breakout and a break below last week's low would fully reverse the three week uptrend.



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Gold, which has been part of the risk-on trade lately, moved higher on Friday and broke above falling wedge resistance. This is the third surge/breakout in the last seven weeks. Will the third time be lucky? GLD formed a lower high in mid June and another lower high in early July as the prior to breakouts failed. Once again, 153 is the level to watch. A move back below 153 would negate the breakout. A move below the late June low (150) would break triangle support and signal a continuation of the bigger downtrend, which has been in force since August. 



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Key Reports and Events:   
                   
Mon - Jul 16 - 08:30 - Retail Sales    
Mon - Jul 16 - 08:30 - Empire Manufacturing    
Mon - Jul 16 - 10:00 - Business Inventories    
Tue - Jul 17 - 08:30 - Consumer Price Index (CPI)        
Tue - Jul 17 - 09:15 - Industrial Production
Tue - Jul 17 - 10:00 - NAHB Housing Market Index
Wed - Jul 18 - 07:00 - MBA Mortgage Index    
Wed - Jul 18 - 08:30 - Housing Starts/Building Permits    
Wed - Jul 18 - 10:30 - Oil Inventories    
Wed - Jul 18 - 14:00 - Fed's Beige Book               
Thu - Jul 19 - 08:30 - Jobless Claims            
Thu - Jul 19 - 10:00 - Existing Home Sales    
Thu - Jul 19 - 10:00 - Philadelphia Fed        
Thu - Jul 19 - 10:00 - Leading Indicators    
   
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.