USO Breaks Flag Support - GLD Fails to Hold Gains

Earnings season is got into gear this week and the start has not been good. We have seen analyst lower expectations the last few weeks and companies are already falling short. Advanced Micro Devices (AMD) and Applied Materials (AMAT) also warned on Tuesday. AMD fell over 10% and AMAT declined over 2.5%. Even though these two are at different ends of the semiconductor process, warnings from both hit the group hard.



QQQ and SPY remain with rising wedges since early June, but the trend within these wedges is down. SPY gapped down last week and held gap resistance with Tuesday's high. Even though the four day decline could be a falling flag, I would consider the short-term trend down as long as the gap holds and the flag falls. A move above 136.4 would break flag resistance. RSI is testing support at 40 and would likely break support should SPY break the rising wedge trendline.







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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) plunged as the Euro surged in a short-covering rally in late June, but surged back above its late June high with a reality check in early July. Neither the Euro nor the EU leaders followed through on the EU summit. It was just a grand announcement with little or no immediate action. The Euro Currency Trust (FXE) broke triangle support last week and Spanish bond yields are back near 7%. UUP broke triangle resistance and will likely exceed its prior high around 23. With stocks and the Dollar negatively correlated, this would be negative for US equities.



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The US Oil Fund (USO) surged to 33 on a combination of short covering, Dollar weakness and Iranian tensions. Is this a breakout or a fake-out? With the Dollar breaking out last week and stocks turning lower the last four days, I think this is a fake-out. USO broke rising flag support last week and established first resistance at 32.50 with this week's high. A break above this level would signal a continuation of the prior surge. Until such a move, I think USO will work its way lower, especially if the Euro and stock market continue to weaken.


 
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Gold is 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:   
       
Wed - Jul 11 - 10:30 - Oil Inventories    
Wed - Jul 11 - 14:00 - FOMC Minutes                    
Thu - Jul 12 - 08:30 - Initial Jobless Claims    
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.