Before hitting the charts, note that EU and IMF officials flew into Dublin (Ireland) today in an effort to convince Irish officials to accept a bailout. The Euro is quite oversold after a sharp decline from 142 to 134 (4.2%) and ripe for a bounce that could retrace a portion of this decline. A bounce in the Euro could also prompt an oversold bounce in stocks. On the daily chart, SPY broke channel support on Tuesday and then formed a doji on Wednesday. These signal indecision that can foreshadow a short-term reversal. There also appears to be support around 118 from choppy trading the last three weeks of October. As noted yesterday, corrections can evolve as trading ranges or declines. We could even see a little of both in the form of a choppy decline. In other words, securities rarely move in a straight line, especially corrections after a strong advance.
On the 60-minute chart, SPY filled the 4-Nov gap and broke support to reverse the short-term uptrend. After a 4% decline in a few days, the ETF is oversold and ripe for some sort of bounce. Broken support marks the first resistance zone around 119.5-120. The 62% retracement and Monday's high mark key resistance around 121. The 50-60 zone marks RSI resistance. A bounce towards these levels would alleviate oversold conditions and possibly produce a short-term peak.
Key Economic Reports:
Nov 18 - 08:30 - Jobless Claims
Nov 18 - 10:00 - Leading Indicators
Nov 18 - 10:00 - Philadelphia Fed Survey
Nov 19 - 05:15 – Bernanke Speaks
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.
