First, note that stocks remain in strong uptrends since the October 4th reversals. Second, the major index ETFs are quite overbought. IWM is up over 24% the last 19 days. SPY is up almost 17% and QQQ is up just over 15%. These are huge gains in just four weeks. Such strong moves often herald the start of a medium or long-term trend change, but overbought conditions increase the chances of a correction period first. Third, it is a huge week for economic reports. Chicago PMI is Monday, the ISM Manufacturing Index is Tuesday and the FOMC policy statement is Wednesday. The week finishes with ISM Services and Factory Orders on Thursday and the employment report on Friday. Stocks have already priced in some pretty stellar numbers. Worse-than-expected economic numbers would weigh on market.
The S&P 500 ETF (SPY) is currently trading near the upper end of the Raff Regression Channel and holdings Thursday's big gains. The blue channel marks the bigger uptrend with support at 122. The green channel marks the current upswing within this bigger channel. A move below 127.1 would reverse this smaller upswing. Note that this is a very steep Raff Regression Channel. Instead of extending the lower trendline to mark support, I am basing support on the end of the lower trendline. This is tanother method for using the Raff Regression Channel to estimate support or resistance.
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Treasuries are in for a possible big week. Better-than-expected economic reports would further weigh on Treasury prices. Worse-than-expected reports would be positive. TLT remains in a downtrend after the continuation support break around 114. This area turns into the first resistance zone. Key resistance remains at 117.
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The US Dollar Fund (UUP) remains in a clear downtrend with a falling channel taking shape. The ETF broke support in the 21.6-21.7 area and this area turns into resistance. Also note that this ETF is oversold after a four week decline without a bounce. RSI remains in bear mode as long as the 50-60 zone holds. Look for a break above 60 to turn momentum bullish again.
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The US Oil Fund (USO) benefitted from strength in stocks and weakness in the Dollar throughout October. The trend remains up, but USO is also overbought and ripe for a correction or pullback. The ETF established short-term support around 34.5 from broken resistance and last week's low. There is also the trendline extending up from early October. A break below this level would reverse the short-term uptrend. The indicator window shows CCI (90). I set this level because it captures the entire uptrend. CCI did not dip below the zero line the last 3+ weeks. A move into negative territory would show the first sign of weakening momentum.
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There is no change on the Gold SPDR (GLD) chart. Even though trading was erratic from late September to mid October, the trend is clearly up after the surge above 162-164. The overall GLD trend is up since the last week of September, while the Dollar trend is down since the first week of October. Broken resistance turns into the first support zone in the 162-164 area.
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Key Economic Reports:
Mon - Oct 31 - 09:45 - Chicago PMI
Tue - Nov 01 - 10:00 - ISM Index
Tue - Nov 01 - 10:00 - Construction Spending
Tue - Nov 01 - 15:00 - Auto/Truck Sales
Wed - Nov 02 - 07:00 - MBA Mortgage Index
Wed - Nov 02 - 07:30 - Challenger Job Cuts
Wed - Nov 02 - 08:15 - ADP Employment Change
Wed - Nov 02 - 10:30 - Oil Inventories
Wed - Nov 02 - 12:30 - FOMC Rate Decision
Thu - Nov 03 - 08:30 - Jobless Claims
Thu - Nov 03 - 10:00 - Factory Orders
Thu - Nov 03 - 10:00 - ISM Services
Fri - Nov 04 - 08:30 - Employment Report
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.
