Stocks were quite oversold after Monday's big plunge and managed to bounce on Tuesday. Even though the market was ripe for this bounce, there were a few fundamental factors contributing to the rebound. Bernanke brought his doves to capital hill, the Home Construction iShares (ITB) surged almost 4% and the Euro ETF (FXE) firmed after becoming way oversold. While I do not think the Italian election affects consumer spending in the US, I would note that the election is unlikely to reverse the reforms passed by the Monti government last week. Martin Currie noted on CNBC Europe today that these reforms are THE law right now and it is highly unlikely that any government coalition will have the votes required to overturn these reforms. The anti-austerity parties may have gained ground, but they are short of majorities. Regardless of the consequences, the Milan Index ($MIB) has broken down and the bond market is demanding higher rates.
Turning back to the US, note that stocks simply firmed on Tuesday with indecisive candlesticks forming in many of the major index ETFs. IWM formed a doji, SPY formed a small candlestick near Monday's lows and QQQ firmed near the 2013 lows. Firmness simply means buying and selling pressure equalized. Stocks have yet to recover from Tuesday's shellacking and I think the bears still have the short-term edge. Also note that oil broke down, the Dollar is strong overall and Treasuries broke out. These events also favor the risk off trade. And finally, just to keep things interesting, Apple holds its investor day (shareholders meeting) on Wednesday and all kinds of rumors are flying.
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Key Reports and Events (all times Eastern):
Wed - Feb 27 - 07:00 - MBA Mortgage Index
Wed - Feb 27 - 08:30 - Durable Goods Orders
Wed - Feb 27 - 10:00 - Pending Home Sales
Wed - Feb 27 - 10:00 - Bernanke testifies before Congress
Wed - Feb 27 - 10:30 - Oil Inventories
Thu - Feb 28 - 08:30 - Jobless Claims
Thu - Feb 28 - 08:30 - GDP
Thu - Feb 28 - 09:45 - Chicago PMI
Thu - Feb 28 - 10:30 - Natural Gas Inventories
Fri - Mar 01 - 08:30 - Personal Income & Spending
Fri - Mar 01 - 09:55 - Michigan Sentiment
Fri - Mar 01 - 10:00 - ISM Index
Fri - Mar 01 - 10:00 - Construction Spending
Fri - Mar 01 - 14:00 - Auto Sales/Truck Sales
Fri – Mar 01 - 23:59 – Sequester Takes Effect (unless...)
Wed – Mar 27 - 23:59 – Government Shut Down Deadline
Wed – May 15 - 23:59 – New Debt Ceiling Deadline
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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