The major index ETFs surged the first two weeks of August and then consolidated the last two weeks. With the medium-term trends clearly up, the odds favor a bullish resolution to these consolidations. However, we could see some serious volatility in the coming weeks as the news flow surges in the US and across the pond. In the US, we have a slew of economic reports this week and the employment report on Friday. The EU takes center stage next week with the German constitutional court ruling, the Dutch elections and the Troika heading to Greece. Thoughts of quantitative easing dominated the markets late last week as stocks finished on a strong note. QE remains at the forefront today as gold and oil surge. Gold is challenging $1700 already and oil is up over 2% on Monday.
The S&P 500 ETF (SPY) has been trading above/below the 141 level since the second week of August. A triangle consolidation formed the last two weeks and traders can watch these boundaries for the next signal. A break below 140 would be short-term bearish, while a break above 142 would be short-term bullish. Even though a break below 140 would be short-term bearish, note that the bigger trend is up and I would still expect support in the 139 area. RSI is testing its support zone in the 40-50 zone.
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Treasuries seem to favor more quantitative easing from the Fed as the 20+ Year T-Bond ETF (TLT) surged above 127.5 on Friday. Looks like the treasury market expects the Fed to extend its purchase program. Something has to give because stocks and treasuries are negatively correlated. Further strength in treasuries would be negative for stocks. TLT is at the 61.80% retracement line and I am marking key support at last week's low.
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The US Dollar Fund (UUP) fell from resistance as Fed Chairman Bernanke opened the door to further quantitative easing at the next Fed meeting. UUP failed at 22.45 resistance and plunged to a new low for the move. Even though this decline reinforces resistance at 22.45, I am leaving key resistance at 22.60 for now. A move above this level would break the late July trend line and negate the prior support break. It will be ECB President Mario Draghi's turn for quantitative easing this week as the ECB meets on Thursday. Thursday could mark the day when market attention moves from the Dollar back to the Euro.
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The US Oil Fund (USO) hit support at 35 and broke above first resistance with a surge on Friday. Oil and other commodities favor more quantitative easing and easy money. This move reinforces support at 35 and keeps the uptrend alive. RSI got a bounce off support in the 40-50 zone and remains in bull mode.
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Gold is also off to the races with a big move on Friday and another big move this week. The Gold SPDR (GLD) formed a falling wedge and broke wedge resistance with a surge above 161 on Friday. The wedge low becomes first support and I am raising key support to the 156-158 area.
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Key Reports and Events:
Tue - Sep 04 - 10:00 - ISM Manufacturing Index
Tue - Sep 04 - 10:00 - Construction Spending
Tue - Sep 04 - 14:00 – Auto/Truck Sales
Wed - Sep 05 - 07:00 - MBA Mortgage Index
Thu - Sep 06 - 07:30 - Challenger Job Cuts
Thu - Sep 06 - 08:15 - ADP Employment Change
Thu - Sep 06 - 08:30 - Jobless Claims
Thu - Sep 06 - 10:00 - ISM Services Index
Thu - Sep 06 - 11:00 - Oil Inventories
Thu – Sep 06 – 14:30 – European Central Bank (ECB) Meeting
Fri - Sep 07 - 08:30 – Employment Report
Tue – Sep 11 – 09:00 – Troika to Greece
Wed – Sep 12 – 09:00 – German Ruling on European Stability Mechanism (ESM)
Wed – Sep 12 – 09:00 – EU Commission Banking Union Proposal
Wed – Sep 12 – 09:00 – Dutch Elections
Wed – Sep 12 – 14:15 – FOMC Policy Statement
Wed – Sep 12 – 09:00 – iPhone 5?
Sat – Oct 06 – 09:00 – 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.
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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