Stocks continued their meandering ways on Monday. There is, however, a slight downward slant in this meandering. IWM and SPY peaked on 14-Sept and worked their way lower the last six days. QQQ, which marches to the Apple beat, is trading below the 14-Sep levels, but has been exceptionally volatile the last six days. The ETF gapped down and stayed down on Monday and this gap should be considered short-term negative until filled. Also notice that the Percent Price Oscillator (PPO) formed a slight bearish divergence and moved below its signal line. This downturn in momentum could foreshadow a correction in the overbought QQQ. As the chart below shows, the late August consolidation marks support in the 67-68 area.
Elsewhere in the market, the sectors were mixed overall, but the defensive sectors showed some relative strength on Monday. In particular, the beaten down Utilities SPDR (XLU) surged around 1% and is on the verge of a resistance break.
No change. The trend since early Friday (14-Sep) has been down with a falling flag of sorts taking shape. Even though this is a bullish pattern, I am skeptical that a breakout will produce a big gain. As noted before, I think overbought conditions are more likely to prevail and push the market into a corrective period. Also note that third quarter earnings season is just around the corner. Corrections can be with pullback or flat trading ranges (consolidations). Broken resistance and the early September consolidation mark first support around 143. Key support remains in the 139-140 area.
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The 20+ Year T-Bond ETF (TLT) surged above last week's high and remains in an uptrend since the mid September low. The pink lines define this uptrend with support at 120.50. A short-term uptrend in treasuries is negative for stocks because these two are negatively correlated. A break below 120.5 would be negative for TLT and bullish for SPY.
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No change. The US Dollar Fund (UUP) has been positively correlated with US Treasuries. This makes sense because both rise when the risk trade is on and both fall when the risk trade is off. The risk trade has been off since mid September as UUP bottomed and bounced from oversold levels. The overall trend remains down with resistance marked in the 2.10 area. With last week's rise, I can mark short-term support at 21.68, a break of which would signal a continuation of the downtrend.
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The US Oil Fund (USO) broke down last week, bounced on Thursday-Friday and continued lower on Monday. An overall trend is clearly down, but oil is getting short-term oversold after an 8% decline in one week. Broken support turns into first resistance in the 35-35.5 area. RSI resistance is set in the 50-60 area.
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The Gold SPDR (GLD) fell back into its consolidation with support at 170. While a break below this level would be short-term negative, I would not consider this a bearish development because there is a bigger support zone in the 167-168 area. A lot will depend on the Dollar (Euro) and stock market. Gold is positively correlated to stocks and the Euro. A correction in these two would likely produce a correction in gold.
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Key Reports and Events:
Tue - Sep 25 - 09:00 - Case-Shiller 20-city Index
Tue - Sep 25 - 10:00 - Consumer Confidence
Tue - Sep 25 - 10:00 - FHFA Housing Price Index
Wed - Sep 26 - 07:00 - MBA Mortgage Index
Wed - Sep 26 - 10:00 - New Home Sales
Wed - Sep 26 - 10:30 - Oil Inventories
Thu - Sep 27 - 08:30 - Jobless Claims
Thu - Sep 27 - 08:30 – Durable Goods Orders
Thu - Sep 27 - 08:30 – GDP
Thu - Sep 27 - 10:00 - Pending Home Sales
Fri - Sep 28 - 08:30 - Personal Income & Spending
Fri - Sep 28 - 09:45 - Chicago PMI
Fri - Sep 28 - 09:55 - Michigan Sentiment
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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