Art's Charts

SPY Tests Support - USO Challenges Resistance

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Stocks moved lower last week with the S&P 500 ETF (SPY) falling over 2%, which was the steepest decline since May. The Nasdaq 100 ETF (QQQ) lost 3.33% as large techs really took it on the chin. The Consumer Discretionary SPDR (XLY) and Technology SPDR (XLK) led the decline with losses around 3%. The Finance SPDR (XLF) held up relatively well with a 1.56% loss. Even though stocks are short-term oversold at this point, the short-term trends are down and stocks could become even more oversold before hitting support. Relative weakness from the technology and consumer discretionary sectors is a major concern. Also note that Retail Sales will be reported on Monday. The Russell 2000 ETF (IWM) chart shows support in the 81 area, which is another 1.33% lower. Also notice that a falling channel has taken shape on the daily chart with resistance at 84.

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On the 60-minute chart, SPY broke support at 144.5 to reverse the prior upswing. The short-term trend is now down with first resistance at 144.70, which stems from broken support. I will leave key resistance at 146 for now. SPY has some support in the 142.5-143 area from the late September low and RSI is sitting near support at 40. Combined with oversold conditions, this could give way to an oversold bounce.

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The 20+ Year T-Bond ETF (TLT) benefitted from stock market weakness and the move to safer assets last week. TLT surged from 121 to 124 and challenged resistance from the late September highs. A break above 125 would be bullish on a medium-term basis and this would be bearish for stocks. The mid September trend line and October lows mark support in the 121.2-122 area.

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The US Dollar Fund (UUP) surged to resistance in the 21.95 area early last week, but fell back and affirmed the validity of this resistance level. UUP has been turned back at 21.95 at least four times in the last three weeks. Last week's decline looks like a falling flag and the move retraced 61.80% of the prior advance. A flag breakout would be positive and a break above the October highs would be bullish for the greenback. RSI has resistance at 60 and a break above this level is needed to turn momentum bullish. Needless to say, a breakout in the Dollar would be bearish for stocks, and probably bullion.

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The US Oil Fund (USO) is all over the place lately. USO broke support with a sharp decline in mid September, but trading then turned choppy as the ETF bounced between broken support and the 32.5-33 area. USO broke the falling wedge trend line last week and then consolidated with a triangle. A move above 34.50 would break triangle resistance and signal a continuation higher. It is also possible that a rising flag is taking shape since early Oct. A move below 33.75 would break flag support and signal a continuation lower.

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The Gold SPDR (GLD) peaked along with the stock market and declined over the last 5-6 days. A falling channel is taking shape with resistance at 172. A breakout here would signal a continuation higher. The lower channel trend line and late September low combine to mark support at 168-169 for GLD. A break below 168 would reverse the short-term uptrend and call for a retracement of the prior advance, which was from 150 to 174. A 50% retracement would extend to 162.

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Key Reports and Events:   
                                                               
Mon - Oct 15 - 08:30 - Retail Sales            
Mon - Oct 15 - 08:30 - Empire Manufacturing        
Mon - Oct 15 - 10:00 - Business Inventories    
Tue - Oct 16 - 08:30 – Consumer Price Index (CPI)    
Tue - Oct 16 - 09:15 - Industrial Production        
Tue - Oct 16 - 10:00 - NAHB Housing Market Index        
Wed - Oct 17 - 07:00 - MBA Mortgage Index    
Wed - Oct 17 - 08:30 - Housing Starts/Building Permits            
Wed - Oct 17 - 10:30 - Oil Inventories
Thu - Oct 18 - 08:30 - Jobless Claims    
Thu – Oct 18 – 09:00 – EU Summit       
Thu - Oct 18 - 10:00 - Philadelphia Fed
Thu - Oct 18 - 10:00 - Leading Indicators    
Fri – Oct 19 – 09:00 – EU Summit
Fri - Oct 19 -    10:00 - Existing Home Sales

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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