Art's Charts

SPY Consolidates below Support - TLT Surges above Resistance

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Stocks are holding their breath ahead of an economic avalanche and presidential election. Today we can expect the ADP Employment Report, Challenger Job Report, Jobless Claims, ISM Manufacturing Index, Construction Spending, Consumer Confidence and Auto/Truck Sales. The Employment Report and Factory Orders will be on Friday. And, of course, the election is Tuesday. Provided we get a clear winner on Wednesday, the market may just find some direction once this news passes and we can start focusing on the fiscal cliff. Yes, the news simply never ends. There is also some big important market-moving event on the horizon. Best stick with the charts and put this news on the back burner.

121101spy


The major index ETFs have been weak since September 14th and flat the last six trading days. QQQ is sitting right at its 200-day moving average, IWM is trading at broken resistance and SPY is consolidating just below its support break. On the IWM chart below, a falling channel has taken shape to define the downtrend. Despite support at 81, we have yet to see an upside catalyst to suggest support will hold. IWM closed between 81 and 82 the last seven days. A close above last week's high would break this little range and provide the first upside catalyst. Follow through above 83.5 would break channel resistance. The bears control the short-term trend until we see an upside catalyst.

121101iwmi
121101spyi

The 30-minute chart, SPY broke support in the 142.5-143 area and this zone turns into resistance. The ETF consolidated the last five days and established a lower resistance level around 142. A break above this level would provide the first sign of strength. I am, however, concerned that this is a consolidation after a sharp decline, which gives it a bearish bias. A break below 140.5 would signal a continuation lower and target a move to the 137 area.

121101qqqi

121101iwmi
 
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Wow! What hit the treasury market? The 20+ Year T-Bond ETF (TLT) surged from 120.75 to 123.50 and broke resistance with a big move. This jump suggests a move towards the risk-off trade and possible weakness in the economic numbers. We shall see how the economic reports pan out over the next two days. Strength in treasuries is negative for stocks. Broken resistance turns first support in the 122 area.

121101tlti

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The US Dollar Fund (UUP) surged to resistance and then consolidated the last five days. A consolidation after a surge is usually bullish and a breakout would signal a continuation higher. The greenback will also focus on the economic data and the elections. Strong economic numbers would favor the risk-on trade, which would be bearish for the Dollar. Weak economic reports would favor the risk-off trade, which would be bullish for the Dollar.

121101uupi

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The US Oil Fund (USO) broke down in mid September and again in mid October. Even though oil is oversold, buying pressure is nonexistent as it consolidates at low levels. A break below 31.50 would signal a continuation lower. Broken support turns into first resistance in the 33-33.50 area. Key resistance remains just above 34.50.

121101usoi

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The Gold SPDR (GLD) moved higher over the last few days and broke the trend line extending down from early October. I am not quite ready to call this a short-term uptrend just yet though. Broken support turns resistance at 138 and follow through is needed to fully reverse this downtrend. The advance over the last few days formed a rising wedge, which is a bearish consolidation pattern. Follow-through failure and a break below wedge support would signal a continuation lower.

121101gldi

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Key Reports and Events:   
                                                       
Thu – Nov 01 - 08:15 - ADP Employment Report
Thu - Nov 01 - 07:30 - Challenger Job Report   
Thu - Nov 01 - 08:30 - Jobless Claims        
Thu - Nov 01 - 10:00 - ISM Manufacturing Index
Thu - Nov 01 - 10:00 - Construction Spending
Thu - Nov 01 - 10:00 – Consumer Confidence
Thu - Nov 01 - 14:00 - Auto/Truck Sales    
Fri - Nov 02 - 08:30 - Employment Report        
Fri - Nov 02 - 10:00 - Factory Orders    
Tue - Nov 06 - 08:00 - Election Day

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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