Technically, there is a case for a medium-term uptrend. SPY recorded a 52-week high in January and the February reaction low is above the early November reaction low. Also, consider that the Russell 2000 ETF (IWM) and S&P 400 MidCap ETF (MDY) are already back near their January highs. This is something to consider. Here is the big question? Was the January-February decline just a sharp pullback within a bigger uptrend or was this deep enough to signal the start of a medium-term downtrend? I thought it was deep enough to start a medium-term downtrend, which makes the current advance a counter-trend move that should peak at or below the January high. Relative strength in small-caps, mid-caps and some techs has me second guessing right now. We may, however, have our answer this week. A strong finish this week would be quite bullish. Conversely, a sharp decline in the next few days would forge a lower high in SPY and be quite negative. I am marking key support at last week's low (109) and a break below this level would reverse the four week advance. There are some charts of interest after the "continue reading" jump.
The 60-minute chart focuses on a shorter timeframe and tighter support level. SPY broke flag resistance and this resistance break turns into a support zone. Also notice that a 50-62% retracement of the 4-day surge would extend to the 110.5-111 area. Support at 110.5 is confirmed with the early February trendline. A break below 110.5 would be the first warning sign. Friday is the employment report, but Mr Market sometimes makes his big move a day or two before the actual report. This happened last month. Note that stocks fell sharply on Thursday, February 4th, and then rebounded with a selling climax on Friday, February 5th. Pre-emptive strikes could occur because we get ADP Employment today and Initial Claims on Thursday.
Wednesday-08:15 ADP Employment
Wednesday-10:00 ISM Services
Wednesday-10:30 Crude Inventories
Wednesday-14:00 Fed's Beige Book
Thursday-08:30 Initial Claims
Thursday-08:30 Continuing Claims
Thursday-10:00 Factory Orders
Thursday-10:00 Pending Home Sales
Friday-08:30 Employment Report
Charts of Interest: ADBE, GERN, GOOG, IBM, IP and MSFT
Wednesday-08:15 ADP Employment
Wednesday-10:00 ISM Services
Wednesday-10:30 Crude Inventories
Wednesday-14:00 Fed's Beige Book
Thursday-08:30 Initial Claims
Thursday-08:30 Continuing Claims
Thursday-10:00 Factory Orders
Thursday-10:00 Pending Home Sales
Friday-08:30 Employment Report
Charts of Interest: ADBE, GERN, GOOG, IBM, IP and MSFT
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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