After a mild recovery day on Monday, stocks opened strong on Tuesday with many of the major index ETFs gapping up. And that was it. These opening gaps, though modest, did not last more than an hour as stocks moved lower the rest of the day. By the end of trading, SPY and QQQQ were testing Monday's lows. Tuesday's long red candlestick reinforces the downtrend on the daily chart. I still view this as a correction because the weekly chart remains in an uptrend. However, buyer scarcity could lead to further weakness. An uptick in selling pressure is not needed to cause a decline. A simple lack of buyers can cause the market to fall under its own weight. This means we could see a break below the 7-May closing low. While a break would affirm the current downtrend on the daily chart, a trend reversal on the weekly chart requires a move below the February low. To reverse the daily chart downtrend, a move above 116 is needed to fill last week's gap and break above the late April trendline.
On the 30-minute chart, SPY failed at 115 and moved towards 112 by the close. It was a pretty substantial decline from high to low. RSI failed in the 50-60 zone to keep short-term momentum bearish. With a reaction high at 115, we can now set short-term resistance there. A move above 115 in SPY and 60 in RSI would reverse the short-term downtrend. Until we see a reversal, the early May lows around 110.5-111 represent the next target zone.
The EU is making a bad situation worse and this could keep buyers on the sidelines. Germany unilaterally banned naked short selling on some key financial stocks and credit default swaps on European bonds. Looks like a bull market in regulation in Europe. France and others are likely to follow. It is interesting that Germany elected to go it alone on this. Obviously, the German government did not want to wait for the EU bureaucracy to decide the issue. This is the first sign of disunity within the EU. Bloomberg reports that the cost of insuring government and corporate debt with credit default swaps soared in the US and Asia. Markets are global and regulation efforts by just one region are futile. The surge in credit default swap cost shows some serious anxiety in the global markets and this could lead to further weakness in US equities.
Key Economic reports:
Wed - May 19 - 08:30AM - Consumer Price Index
Wed - May 19 - 10:30AM - Crude Inventories
Thu - May 20 - 08:30AM - Initial Claims
Thu - May 20 - 10:00AM - Leading Indicators
Charts of Interest: AUY, CRR, DE, JBHT, NFLX, PFCB, POOL, WHR
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.
The EU is making a bad situation worse and this could keep buyers on the sidelines. Germany unilaterally banned naked short selling on some key financial stocks and credit default swaps on European bonds. Looks like a bull market in regulation in Europe. France and others are likely to follow. It is interesting that Germany elected to go it alone on this. Obviously, the German government did not want to wait for the EU bureaucracy to decide the issue. This is the first sign of disunity within the EU. Bloomberg reports that the cost of insuring government and corporate debt with credit default swaps soared in the US and Asia. Markets are global and regulation efforts by just one region are futile. The surge in credit default swap cost shows some serious anxiety in the global markets and this could lead to further weakness in US equities.
Key Economic reports:
Wed - May 19 - 08:30AM - Consumer Price Index
Wed - May 19 - 10:30AM - Crude Inventories
Thu - May 20 - 08:30AM - Initial Claims
Thu - May 20 - 10:00AM - Leading Indicators
Charts of Interest: AUY, CRR, DE, JBHT, NFLX, PFCB, POOL, WHR
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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