Art's Charts

SPY Tests Support - USO Fails at Resistance

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Stocks took it on the chin again with more selling pressure on Wednesday. The declines were modest with the Dow Industrials SPDR (DIA) falling around 1% and the Russell 2000 ETF (IWM) falling just .16%. After a four day decline, stocks are getting short-term oversold and some of the major index ETFs are testing support from the late September lows. MDY, SPY and DIA are testing these lows. IWM and QQQ broke these lows on Tuesday. The chart below shows IWM with a falling flag or wedge defining the short-term downtrend. This is still a smaller downtrend within a bigger uptrend. The blue trend lines mark a rising channel with support in the 81 area. Broken resistance and the 50-61.80% retracement zone confirm potential support here. 

121010iwm


121011spyi

On the 60-minute chart, SPY fell around 4 points in four days and is getting short-term oversold as it trades near potential support in the 143 area. This combo could give way to an oversold bounce. Also notice that 40-period RSI is near 40, which may mark support. Why did I choose 40 periods for RSI? Because 40-period RSI held the 40-50 support zone on every pullback since mid June. The pullback that finally pushes RSI below 40 would be deemed strong enough to reverse this uptrend. Note that this was a short-term uptrend in early July and it morphed into a medium-term uptrend as the advance simply extended. Turning back to the price break, broken support turns into first resistance in the 144.75 area. I will leave key resistance at 146 for now. The finance sector is showing relative strength and holding up SPY right now. Keep an eye on XLF for clues on SPY.

121011iwmi

121011iwmi

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Unsurprisingly, the 20+ Year T-Bond ETF (TLT) surged because stocks remained weak. Treasuries represent the risk-off trade and the safe-haven alternative to stocks. TLT firmed in the retracement zone and broke resistance with a surge above 122.50 on Wednesday. I think this breakout is short-term bullish and treasuries will remain strong as long as stocks and the Euro weaken. This week's low mark support at 121.20.

121011tlti


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No change. The risk-off trade was also buoyed by a surge in the Dollar. The US Dollar Fund (UUP) failed to hold the channel break and surged to resistance in the 21.95 area. The failed break is positive and a follow through breakout would be bullish for the Dollar. RSI is also challenging resistance at 60 and a breakout would turn momentum bullish. An uptrend in the Dollar would be bearish for stocks, and possibly gold.

121011uupi

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No change. It is hard to ignore the day-to-day swings in oil, but I am not going to turn bullish on this trend line break just yet. The US Oil Fund (USO) surged above 34 and broke the falling wedge trend line. Even though this is positive, I think resistance in the 34.5-34.75 area holds the real key here. RSI is in its resistance zone and has yet to break above 60. Also note oil could be weighed down by weakness in stocks and strength in the Dollar.

121011usoi
 
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No change. Weakness in stocks and strength in the Dollar did weigh on gold. The Gold SPDR (GLD) fell from 174 to 171 over the last three days. The overall trend remains up, but traders should watch the Dollar closely in the next few days. Even though GLD may have support in the 170 area, I am going to leave key support at 167-168 for now. The idea is to avoid whipsaws from the noise (volatility). A break below 167 would be deemed excessive and call for a trend reversal.

121011gldi

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Key Reports and Events:   
                                                               
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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