The Euro Currency Trust (FXE) broke down with a sharp decline, but the Gold SPDR (GLD) bounced after early weakness to hold well above support. I suspect that the Dollar is strengthening for a number of reasons. First, US interest rates surged in February. Second, turmoil in Egypt and the Middle East could be spur a flight to safety. Third, stock markets in India, China and Brazil have been falling the last few months and stocks in developed markets are looking ripe for at least a pullback. This could also spark a flight to quality. The reasons, of course, are secondary to the chart. FXE formed a lower high and broke wedge support. The 133-133.5 area marks the next support zone.
GLD remains within an uptrend defined by a rising wedge. There is some concern because the pattern typically marks a counter-trend advance within a bigger downtrend. Moreover, the advance retraced 50% of the January decline. However, the wedge is clearly rising and GLD remains in bull mode as long as support at 131 holds.
There is no change on the daily or 60-minute charts. The overall trend is up, but SPY is overbought after a 4% advance the first seven days of the month and an 11.8% advance since the beginning of December. The 60-minute chart marks first support at 131. Hey, how about that. GLD and SPY have the same short-term support levels! Time for some old school Twilight Zone music. A move below 131 would fill Monday's gap and argue for a pullback. Also notice that RSI bounced off the 40-50 zone. A break below 40 would turn momentum bearish. Yesterday's price action shows that the bears need to be very careful though. First, being bearish is fighting the tape, the trend and the Fed. Second, notice how stocks opened weak on Thursday and immediately surged back towards their February highs. Dips seem to bring out the buyers.
Key Economic Reports/Events:
Fri - Feb 11 - 09:55 - Michigan Sentiment
Charts of Interest: 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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