Stocks took it on the chin Tuesday with big losses in the major index ETFs. The Russell 2000 ETF (IWM) and S&P 400 MidCap ETF (MDY) led the way lower with losses greater than 2%. All sectors were down with energy, materials, utilities, industrials and consumer discretionary losing over 2% each. The latter two are quite a concern for the overall market, especially relative weakness in the consumer discretionary sector, which is the most economically sensitive. Elsewhere, there was more evidence of the risk-off trade as bonds, gold and the Dollar moved higher. The 20+ Year T-Bond ETF (TLT) surged above triangle resistance and further strength bodes ill for equities. The Gold ETF (GLD) firmed and there was no follow through to Tuesday's sharp decline. GLD remains in an uptrend. The DB Dollar Bullish ETF (UUP) bounced off support at 25 the last two days. The Perfchart below shows performance for the five intermarket ETFs over the last two days. Also notice that oil fell along with stocks.
On the daily chart, the S&P 500 ETF (SPY) formed two long red candlesticks over the last two days. We have seen nothing but selling pressure since the Monday morning gap. In the process, SPY broke below short-term support at 110.5 with decisive action. Also notice that RSI broke below 50 to shift momentum in favor of the bears. While a pullback after a surge is to be expected, two long red candlesticks and relative weakness in the consumer discretionary sector favors further weakness. We could even see a support test around 104-106.
On the 30-minute chart, SPY failed to hold Monday's gap and declined below support. A pullback to support after a gap/surge is one thing. A break below support and weak close are another. Also notice that 26-period RSI broke below 40 to turn momentum bearish. This negates the break above 60 that we saw on 14-June (green dotted line). At this point, I would put first resistance at 112. This will allow for some wild swings just before and after today's FOMC policy statement. With a three point decline in roughly two days, SPY is also getting short-term oversold.
Key Economic Reports:
Wed - Jun 23 - 10:00 - New Home Sales
Wed - Jun 23 - 10:30 - Crude Inventories
Wed - Jun 23 - 14:15 - FOMC Rate Decision
Thu - Jun 24 - 08:30 - Durable Orders
Thu - Jun 24 - 08:30 - Initial Claims
Fri - Jun 25 - 08:30 - GDP Estimate
Fri - Jun 25 - 09:55 - U of Michigan Sentiment
Charts of Interest: CLF, GOOG, JOYG, LXK, SLB
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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