It was another mixed day on Wall Street as stocks meandered on either side of unchanged. The major index ETFs were mixed as well with the Dow Industrials SPDR (DIA) and Russell 2000 ETF (IWM) edging higher, but the Nasdaq 100 ETF (QQQ) and S&P MidCap 400 SPDR (MDY) edged lower. Sector action was also a yawner as the Basic Materials SPDR (XLB) produced the biggest gain, a whopping .45% advance. The Energy SPDR (XLE) was the biggest loser with a -.38% loss.
The chart below shows Nasdaq volume relative to NYSE volume. Even though total volume was low in August, you can see that Nasdaq volume was stronger than NYSE volume in early August (yellow area). The volume ratio has since moved back to its long-term average (200-day), but the Nasdaq continues to outperform the NY Composite. Relative strength in Nasdaq volume and the Nasdaq is a positive for the market overall because it reflects an appetite for risk. The volume appetite, however, is dwindling as we move into September.
On the 60-minute chart, the S&P 500 ETF (SPY) remain locked in its trading range or falling wedge pattern. Support is set at 138.8 and resistance at 141.8. Look for a break of these levels to trigger the next signal. Looking at the move since late July, there appears to be a five wave sequence unfolding. Wave 1 is the sharp surge to 139, Wave 2 marks the deep pullback, Wave 3 extended to 143 and Wave 4 is a sideways correction. The deep pullback is typical for Wave 2 pullbacks and the sideways consolidation is typical for Wave 4 corrections. A break above Friday's high would signal the start of Wave 5 and target a move to new highs for SPY.
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No change. Treasuries seem to favor more quantitative easing from the Fed as the 20+ Year T-Bond ETF (TLT) surged above 127 on Friday and held its gain on Tuesday. 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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No change. The spotlight could turn to the Euro this week as the European Central Bank (ECB) meets on Thursday. The Fed is not the only central bank ready for quantitative easing. ECB President Drahgi is paving the way to purchase sovereign debt and expand the ECB balance sheet. Sound familiar? In any case, the UUP remains in a six week downtrend and FXE remains in a six week uptrend. UUP is near medium-term support at 81. I am marking key resistance at 22.50 for UUP and key support at 123.8 for FXE. Watch these levels for a possible short-term reversal.
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No change. The US Oil Fund (USO) got its breakout, but failed to hold the breakout and moved back to the 35.50 area on Tuesday. RSI fell back into its support zone (40-50). A break below 35 in USO and 40 in RSI would be short-term bearish. A lot depends on the Dollar and stock market. USO is positively correlated with stocks and quantitative easing, but negatively correlated with the Dollar.
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No change. The Gold SPDR (GLD) broke out in mid August, corrected last week and surged again on Friday. GLD continued higher on Tuesday. Last week's correction low marks first support. Broken resistance and the July trend line mark a support zone around 156-158. Keep an eye on the Dollar for clues on gold.
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Key Reports and Events:
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 – 09:30 – European Central Bank (ECB) Meeting
Thu - Sep 06 - 10:00 - ISM Services Index
Thu - Sep 06 - 11:00 - Oil Inventories
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 – Apple Event for iPhone 5, iPad mini, iCar, iWife....
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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