After a big surge from mid June to early July, stocks corrected with pullbacks over the last seven trading days. SPY and IWM were weighed down by weakness in money-center banks and regional banks on Monday, but DIA and QQQ held up relatively well. In fact, QQQ finished with a big doji on the day and DIA formed a hammer. Doji signal indecision that can foreshadow a reversal. Hammers reflect a close well off the intraday low.
On the 60-minute charts, falling wedges or channels have taken shape since July 8th. Upside breakouts would reverse these declines to signal a continuation of the prior advance. SPY formed a falling wedge that retraced 61.80% of the prior advance and returned all the way to broken resistance. This is the spot to expect a reversal of the seven day downtrend. A move above the wedge trendline and resistance at 132 would do the trick. The Percent Price Oscillator (PPO) remains in negative territory. Look for a break above last week's high and into positive territory to turn short-term momo bullish again.
QQQ held up the best over the last seven days with the shallowest retracement (38.2%). A falling channel formed on the 60-minute chart with Friday's high marking resistance. Look for a break above this level to reverse the 5-7 day downtrend. CCI remains in negative territory and below +20. A break above +20 would turn momo bullish again. QQQ performance has and will hinge on Apple, which is its biggest component and which reports earnings after the close.
IWM is in the middle with a 50-61.80% retracement of the prior advance. Short-term resistance is set at 83 on the price chart and +20 for CCI.
Key Economic Reports:
Tue - Jul 19 - 08:30 - Housing Starts/Building Permits
Wed - Jul 20 - 10:00 - Existing Home Sales
Wed - Jul 20 - 10:30 - Oil Inventories
Thu - Jul 21 - 08:30 - Jobless Claims
Thu - Jul 21 - 10:00 - Philadelphia Fed
Thu - Jul 21 - 10:00 - Leading Indicators
Chart 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.
