**This chart analysis is for educational purposes only, and should not
be construed as a recommendation to buy, sell or sell-short said securities**
Stocks pulled back on Tuesday with the Home Construction iShares (ITB), Gold Miners ETF (GDX) and Biotech SPDR (XBI) leading the way lower. ITB is on the verge of a head-and-shoulders support break. GDX broke down to signal a continuation of its larger downtrend. XBI, on the other hand, is merely correcting after a big run and remains in an uptrend. Overall, stocks are due for a corrective period because the current advance is rather mature. Long-term, SPY is up over 25% from its November low. Short-term, SPY is up around 9% from its late June low. Overbought conditions do not guarantee a correction, but they sure to increase the chances. The charts below show the AD Line and AD Volume Line for the S&P 500. The AD Line broke out in late June and the AD Volume Line broke out in early July. Both recorded new highs in early August and then pulled back the last two days. I am using the late July low and a small buffer to mark short-term support. Notice that the late July lows also mark support for the S&P 500. A break by all three would clearly reverse the short-term uptrends and put the corrective wheels in motion.
be construed as a recommendation to buy, sell or sell-short said securities**
Stocks pulled back on Tuesday with the Home Construction iShares (ITB), Gold Miners ETF (GDX) and Biotech SPDR (XBI) leading the way lower. ITB is on the verge of a head-and-shoulders support break. GDX broke down to signal a continuation of its larger downtrend. XBI, on the other hand, is merely correcting after a big run and remains in an uptrend. Overall, stocks are due for a corrective period because the current advance is rather mature. Long-term, SPY is up over 25% from its November low. Short-term, SPY is up around 9% from its late June low. Overbought conditions do not guarantee a correction, but they sure to increase the chances. The charts below show the AD Line and AD Volume Line for the S&P 500. The AD Line broke out in late June and the AD Volume Line broke out in early July. Both recorded new highs in early August and then pulled back the last two days. I am using the late July low and a small buffer to mark short-term support. Notice that the late July lows also mark support for the S&P 500. A break by all three would clearly reverse the short-term uptrends and put the corrective wheels in motion.
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Key Reports and Events (all times Eastern):
Wed - Aug 07 - 07:00 - MBA Mortgage Index
Wed - Aug 07 - 10:30 - Crude Inventories
Thu - Aug 08 - 08:30 - Initial Claims
Thu - Aug 08 - 10:30 - Natural Gas Inventories
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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