Two down, one to go. The elections and the Fed have passed with little fanfare for stocks. Details of QE2 were released in the Fed policy statement. Bonds went one way and the Finance SPDR (XLF) went the other way. Funny how that worked. Bonds, which are direct beneficiaries of this $600 billion buy program, declined sharply after the announcement. The finance sector, which appears to also benefit from this program, surged after the announcement and broke triangle resistance. XLF has been stuck in a tightening range the last 2-3 weeks. Wednesday's breakout is short-term bullish and affirms support at 14.40-14.45. Also notice that RSI broke out of its 2 1/2 week range. This is a positive development for the stock market as well.
There is still no change on the daily chart. Even though the advance has grown laborious, SPY remains in an uptrend. The surge above 114 on September 20th marked the easy part of the advance. Since this surge, SPY has worked its way higher within a rising price channel. Many indecisive candlesticks formed, but the uptrend was never reversed with a downside move. A break below channel support at 117 would argue for a pullback towards broken resistance around 112. CCI remains in its bull zone and has yet to break 50 to signal weakness in momentum.
There is not much change on the 60-minute chart. Price action remains choppy, but SPY continues to record new reaction highs. The ETF closed at its highest level for the advance, which began in early September. This is one of the longest short-term advances I have seen. Support levels continue to hold and resistance levels continue to fold. With lots lot of support around 118 and I will maintain key short-term support at 117.70. A break below this level, combined with an RSI break below 40, would reverse the short-term uptrend.
Key Economic Reports:
Thu - Nov 04 - 08:30 - Initial Claims
Thu - Nov 04 - 08:30 – Bank of England Policy Statement
Thu - Nov 04 - 08:45 – European Central Bank Policy Statement
Fri - Nov 05 - 08:30 - Employment Report
Fri - Nov 05 - 10:00 - Pending Home Sales
Charts: Tuesday and Thursday in separate post.
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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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