Trading was mixed on Wednesday with the major index ETFs finishing slightly negative. This looks like a little buy-the-rumor and sell-the-news, especially for Apple, which opened above 396 and closed below 387. The sectors were mixed with the Finance SPDR (XLF) sporting the biggest gain (+1.14%). This may be in hopes of a big announcement out of Europe. German Chancellor Angela Merkel and French President Nicolas Sarkozy will issue a joint statement today and this could affect the Euro - as well as oil, gold and bonds.
Turning back to stocks, the cup is still half full because Tuesday's gaps and gains are holding. This means the wedge/channel breakouts remain in play. Trading should at least respect these breakouts as long as they hold. A move below Monday's close would fill the gaps and negate the breakouts. Of the big three, QQQ is the strongest as the Apple effect remains strong. IWM looks the weakest because it is barely holding its breakout. As noted in Wednesday's market message, the Rydex S&P Equal Weight Index (RSP) has been underperforming the S&P 500 ETF (SPY) since May. This is another sign of relative weakness in small-mid caps.
The 20+ year Bond ETF (TLT) is all over the place and a tough call at the moment. The bias remains bullish after the surge above 97, pullback to 95.25 and this week's bounce. TLT established clear short-term support at 95 and this is the level to watch for a breakdown.
The Euro Currency Trust (FXE) edged above triangle resistance on Wednesday. This short-term breakout is bullish as long as it holds. I would mark first support at 140.50. A move below this level would throw cold water on the breakout. The 61.80% retracement zone marks the next resistance area.
Oil is probably going to take its cue from the Euro and stock market. Further strength in stocks and the Euro would likely give way to a breakout in the 12-Month US Oil Fund (USL). Triangle resistance is set at 45 and support at 43.40.
The Gold SPDR (GLD) bounced off its first support level and moved back above 155 on Wednesday. This reinforces support in the 153.8-154 area. I still think gold is frothy at this stage and a little bit of positive news could trigger a correction. Politicians always seem to strike an 11th hour deal, both in Europe and Washington.
Key Economic Reports:
Thu - Jul 21 - 08:30 - Jobless Claims
Thu - Jul 21 - 10:00 - Philadelphia Fed
Thu - Jul 21 - 10:00 - Leading Indicators
Charts of Interest: Tuesday and Thursday in separate post.
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.
