It is always difficult to pick the exact cause of an advance or decline in stocks, but the positive correlation between the Euro and stocks has been quite strong this year. The Euro Currency Trust (FXE) extended its three day slide with a move below 137.5 on Tuesday. Actually, the decline started immediately after the Thursday's gap up. The ETF gapped up to 142 on Thursday morning and hit 137 on Tuesday's low. That's a 3.5% decline in four days, which looks like more than just profit taking. The ETF failed to hold the triangle breakout and declined all the way to support from the early November lows.
The surge in medium and long-term rates is the other big item. The 10-year Treasury Yield ($TNX) found support near its 62% retracement and broke above the early November highs. This breakout signals a continuation of the October advance. Moreover, it looks like the 10-year Treasury Yield is putting in a medium-term trend reversal. This means a bearish trend reversal for 10-year notes. Rising rates are helping the Dollar, but a rising Dollar/falling Euro could be hurtig the stock market.
There is no change in the trend on the daily chart, but SPY formed a bearish engulfing with yesterday's reversal. This bearish candlestick reversal formed after the ETF became overbought with a break above the upper trendline of the rising price channel. At this point, the most expected is a pullback within the uptrend. The lower trendline and last week's low mark the first support zone around 118-119.
On the 60-minute chart, SPY actually broke a short-term support level at 122 with the Tuesday afternon decline. This break, however, is very minor right now. Overall, the trend remains up with support expected somewhere between 118-121. Sorry for such a large range. The gap zone around 120-121 is possible support. Broken resistance around 119-120 also marks potential support. In an attempt to be more exact, I would say 120 for support. RSI moved into its 40-50 support zone with Tuesday's decline.
Key Economic Reports:
Nov 10 - 07:00 - MBA Mortgage Applications
Nov 10 - 08:30 - Jobless Claims
Nov 10 - 10:30 - Oil Inventories
Nov 12 - 09:55 - Michigan Sentiment
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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