Stocks continued to edge lower on Tuesday with small-caps and mid-caps leading the way. The Russell 2000 ETF lost .70% and the S&P MidCap 400 SPDR declined just over 1%. Eight of the nine sectors were down with the Technology SPDR bucking the trend. However, XLK gained just .12%, which is hardly earth shattering. Perhaps the most significant move over the last two days came from the housing group as the Home Construction iShares (ITB) fell 3.80% this week already. ITB failed to breakout of its pennant formation and broke below the lower trend line twice in the last five days.
The markets have been treading water for two days, but the fireworks should start today as the FOMC makes its policy statement and chairman Bernanke holds his press conference. On the 60-minute chart, the S&P 500 ETF (SPY) has been zigzagging higher since mid June. A continuation of this pattern calls for a "zag" lower and support in the 134 area to form a higher low. After surging back to 139 last week, the ETF retreated the last two days with a falling flag formation. A break above 139 would signal a continuation higher.
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No change. Treasuries will be at the mercy of this week's economic reports and the FOMC meeting. Signs of economic weakness would be bullish, while signs of economic strength would be bearish. Keep in mind that the medium-term and long-term trends are up for treasuries. On the price chart, the 20+ Year T-Bond ETF (TLT) broke down last week, but bounced off broken resistance and the 61.80% retracement line. The yellow zone marks a key area to watch. A break below this zone would be bearish for treasuries and bullish for equities.
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No change. The Dollar will be in the spotlight this week with a slew of economic reports hitting the fan and the FOMC policy statement on Wednesday. UUP plunged after Drahgi saved the Euro, at least in theory, last week. A promise made is a debt unpaid so the European Central Bank (ECB) better deliver. The US Dollar Fund (UUP) is firming near the 61.80% retracement and establishing minor resistance with Monday's high.
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Oil is showing relative weakness the last few days as the US Oil Fund (USO) failed to hold its breakout. USO broke below first support and is now testing key support at 32.50. RSI is also testing support at 40. Oil remains hostage to stocks and the Dollar. A surge in stocks and fall in the Dollar would be bullish, while a plunge in stocks and surge in the Dollar would be bearish.
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No change. Strength in the Euro and stock market carried over to gold as the Gold SPDR (GLD) surged above the triangle trend line late last week. The gap and wedge breakout held. More importantly, GLD followed through on this breakout. The gap zone and breakout mark the first support zone to watch. A move back below 153.5 would negate this move. Key support remains at 152 for now.
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Key Reports and Events:
Wed - Aug 01 - 07:00 - MBA Mortgage Index
Wed - Aug 01 - 08:15 - ADP Employment Report
Wed - Aug 01 - 10:00 - ISM Manufacturing Index
Wed - Aug 01 - 10:00 - Construction Spending
Wed - Aug 01 - 10:30 - Crude Inventories
Wed - Aug 01 - 14:00 - Auto/Truck Sales
Wed – Aug 01 - 12:30 – FOMC Policy Statement
Thu - Aug 02 - 07:30 - Challenger Job Cuts
Thu - Aug 02 - 08:30 - Jobless Claims
Thu - Aug 02 - 10:00 - Factory Orders
Thu - Aug 02 - 10:00 – European Central Bank (ECB) Meeting
Fri - Aug 03 - 10:00 - ISM Services Index
Fri – Aug 03 - 08:30 – Employment Report
Fri – Aug 31 – 09:00 – Jackson Hole Central Bank Symposium
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.
About the author:
Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London.
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