Stocks sold off on Friday, but the long-term trends remain up. We cannot forget about the long-term trend because it is the bigger force. In other words, IWM and QQQ may be in downtrends since early March, but these downtrends are still considered corrections within bigger uptrends. Yes, relative weakness in small-caps, large-techs and the consumer discretionary sector is a concern. However, the AD Line and AD Volume Line for the S&P 1500 hit new highs last week and remain in clear uptrends. This is because the pockets of strength still outweigh the pockets of weakness in the stock market. It is a big week for fundamentals because we have earnings season, a heavy economic docket and a Fed policy statement on Wednesday.
**This chart analysis is for educational purposes only, and should not
be construed as a recommendation to buy, sell or sell-short said securities**
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Despite a gap down and weak close on Friday, SPY ultimately held support and remains with a short-term uptrend. Also note that SPY held up better than IWM and QQQ last week. It is possible that a lower high formed last week and this would go with the lower low from mid April. Further weakness below 185.8 would underscore this lower high and argue for a short-term downtrend.
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QQQ fell sharply on Friday and this decline affirms resistance in the 87.5-88 area. Resistance here stems from the mid April high and last week's peaks. While the string of lower highs continues to extend, note that a pullback after a sharp surge is pretty normal. QQQ surged from 83.3 to 88 in five days and was short-term overbought. Chartists can watch the gap and resistance for signs of a bullish reversal.
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IWM formed another lower high with a sharp decline over the last three days. Even though this lower high extends the short-term downtrend, the ETF is getting short-term oversold and the decline has retraced 62% of the prior advance. Oversold conditions and the key retracement could give way to a bounce. The April trend line marks downtrend resistance at 114.3. IWM continues to underperform SPY.
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The 20+ YR T-Bond ETF (TLT) surged to a new reaction high with the move to 112 intraday. This move extends the uptrend in Treasuries as we head into the employment report on Friday. The bond market is pricing in bad economic news this week so anything positive would likely weigh on Treasuries. On the price chart, last week's lows and the lower trend line of the rising channel mark uptrend support.
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The Dollar may also cue off this week's economic reports. Strength would increase the propensity to taper and this would be Dollar positive. UUP bounced off support and then consolidated the last two weeks. A break above 21.4 would be bullish here. The Euro Index ($XEU) continues to stall with support at 137.8 and resistance at 138.4. Watch these levels for the next short-term signal.
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The USO Oil Fund (USO) extended its correction with a move to the big support zone (36.50-36.75). Broken resistance and the Fibonacci cluster marks support here as the ETF forms a falling wedge. A break above wedge resistance (call it 37) would be bullish here.
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Gold got a surge last week as stocks fell and Treasuries rose. Maybe this was the Ukraine premium. In any case, the overall trend remains down and GLD is nearing its first resistance area. The 50-62% retracement zone and mid March trend line mark resistance in the 126 area. Watch the Euro because an upside breakout in $XEU would be positive for gold.
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Key Reports and Events (all times Eastern):
Mon - Apr 28 - 10:00 - Pending Home Sales
Tue - Apr 29 - 09:00 - Case-Shiller 20-city Index
Tue - Apr 29 - 10:00 - Consumer Confidence
Wed - Apr 30 - 07:00 - MBA Mortgage Index
Wed - Apr 30 - 08:15 - ADP Employment Report
Wed - Apr 30 - 08:30 - GDP
Wed - Apr 30 - 09:45 - Chicago PMI
Wed - Apr 30 - 10:30 - Crude Oil Inventories
Wed - Apr 30 - 14:00 - Fed Policy Statement
Thu - May 01 - 07:30 - Challenger Job Report
Thu - May 01 - 08:30 - Initial Jobless Claims
Thu - May 01 - 08:30 - Personal Income & Spending
Thu - May 01 - 10:00 - ISM Manufacturing Index
Thu - May 01 - 10:00 - Construction Spending
Thu - May 01 - 10:30 - Natural Gas Inventories
Thu - May 01 - 14:00 - Auto-Truck Sales
Fri - May 02 - 08:30 - Employment Report
Fri - May 02 - 10:00 - Factory Orders
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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