Art's Charts

SPY Holds Breakout - QQQ Tests Support and Underperforms

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Stocks edged lower with the Apple-laden Nasdaq 100 ETF (QQQ) leading the way (-.95%). The Russell 2000 ETF (IWM) was also relatively weak with a .63% decline on the day. Seven of the nine sectors were lower with the Technology SPDR (XLK) falling over 1%. The Energy SPDR (XLE) and the Utilities SPDR (XLU) were the lone gainers. Trading was fairly lackluster on Monday because of the bank holiday and bond market closure. Volume levels should return to normal as earnings season kicks off with Alcoa on Tuesday. Even though the Home Construction iShares (ITB) remains one of the strongest industry group ETFs, the ETF appears to be hitting resistance from the late September high. Notice that this high formed with a bearish engulfing pattern.

121008itb

121009spyi

On the 60-minute chart, SPY broke resistance in the 145.5 area and this breakout is being tested. Broken resistance and the late September trend line combine to mark support at 144.50. A break below this level would mean the breakout failed and the short-term uptrend reversed. RSI remains in bull mode as it bounced off the 40-50 zone. This zone now marks momentum support and a break would be bearish.

121009qqqi

121009iwmi

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No change. The breakdown in the 20+ Year T-Bond ETF (TLT) is bullish for stocks, as is the upturn in the 10-year Treasury Yield ($TNX). TLT broke support at 123 and then fell sharply after the employment numbers on Friday. Despite this breakdown, the ETF is at a potential support zone. Notice that the decline retraced 50-61.80% of the prior advance and broken resistance (trend line) turns into potential support.

121009tlti

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No change. The US Dollar Fund (UUP) broke down last week and this is also positive for stocks. This breakdown has to hold and the resistance lines are clear. UUP has resistance from the late September highs and RSI has resistance at 60. Breakouts in both would be bullish. Until then, the trend is down for the greenback and up for the Euro.

121009uupi

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No change. Oil is all over the place, but the general trend is clearly down since mid September. USO broke support and broken support held. A falling wedge may be taking shape, but the trend is down as long as the wedge falls. I am leaving resistance at 34.75 and a break above this level is needed for a definitive trend change. RSI remains in bear mode with resistance at 60.

121009usoi

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No change. There is not much change in gold, which remains negatively correlated to the Dollar and positively correlated to stocks. The Gold SPDR (GLD) edged above 172 in mid September and closed just above 172 on Friday. GLD has not moved much in the last three weeks. The trend is up and this is still viewed as a consolidation within an uptrend. First support is set at 171, but I will focus my attention on key support at 167. 

121009gldi

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Key Reports and Events:   
                                                           
Tue - Oct 09 - 09:00 - EU Finance Ministers Meet    
Wed - Oct 10 - 07:00 - MBA Mortgage Index    
Wed - Oct 10 - 14:00 - Fed's Beige Book                
Thu - Oct 11 - 08:30 - Jobless Claims            
Thu - Oct 11 - 11:00 – Oil Inventories    
Fri - Oct 12 - 08:30 – Producer Price Index (PPI)        
Fri - Oct 12 - 09:55 - Michigan Sentiment
Thu – Oct 18 – 09:00 – EU Summit
Fri – Oct 19 – 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.
Arthur Hill
About the author: , 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. Learn More
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