As noted on Friday, the S&P 500 ETF (SPY) is in a medium-term uptrend after the October breakout in the 122-124 area. Broken resistance turns into support and the ETF tested this support zone with sharp declines in November. Both declines were punctuated by down gaps, but the ETF ultimately held the support zone. Most recently, SPY gapped down last Wednesday and quickly firmed above the early November low. The ETF countered this down gap with a gap up and short-term breakout on Friday. Overall, the lower high and higher low in November form a triangle pattern. Friday's gap/breakout is bullish until proven otherwise. I am marking key support at 123.50 for now. A move below this level would fill the gap and break the lower trendline of the triangle. It remains a very tough market with at least five big gaps in the last four weeks. We should keep in mind that the medium-term trend, which is the bigger trend, is up as long as the breakout zone in the 122-124 area holds. It is also worth noting that Europe as thrown a lot of negative news at the market and this breakout is still holding. Stocks are going to be tested again this week with a slew of key economic reports. Retails Sales and the Empire Manufacturing survey will be reported Tuesday before the open. Industrial production is on Wednesday and the Philly Fed on Thursday.
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The 20+ year Bond ETF (TLT) continues to consolidate within a falling flag pattern over the last two weeks. The surge and breakout are still bullish. Moreover, falling flags are bullish continuation patterns. The ETF is currently at support from the November lows in the 115-116 area. A surge off support would be the first hint at a flag breakout. Bonds will be cueing off this week's economic reports, especially Retail Sales and the Consumer Price Index (CPI).
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The US Dollar Fund (UUP) broke flag resistance with a surge on Wednesday, but failed to hold this breakout with a sharp decline on Friday. Nevertheless, I still consider the bigger trend up because of the surge and breakout on November 1st. Even though the failed flag breakout is a concern, there is still a lot of support in the 21.60 area from the November lows. A move below these lows would clearly break support and negate the breakout.
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The US Oil Fund (USO) remains one of the strongest assets this month. The ETF started its big move after opening below 35 on November 1st. Since this weak open, the ETF is up almost 10% with a steady move higher. USO broke flag resistance in the process and broken resistance turns first support in the 36-36.50 area. Strength in oil could be a sign of strength in the economy and this is positive for stocks.
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The Gold SPDR (GLD) held support in the 170 area and surged on Friday as the Dollar dropped. I am not sure how much clout the Dollar really has though. Notice that GLD is up some 10% from its October 20th low and the US Dollar Fund (UUP) is essentially flat over the same timeframe. Gold's gains came despite a flat Dollar. Nevertheless, the surge in gold reinforces support at 170 in GLD. A move below this level would reverse the short-term uptrend.
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Key Economic Reports:
Tue - Nov 15 - 08:30 - Producer Price Index (PPI)
Tue - Nov 15 - 08:30 - Retail Sales
Tue - Nov 15 - 08:30 - Empire Manufacturing
Wed - Nov 16 - 07:00 - MBA Mortgage Index
Wed - Nov 16 - 08:30 - Consumer Price Index (CPI)
Wed - Nov 16 - 09:15 - Industrial Production
Wed - Nov 16 - 10:00 - NAHB Housing Market
Wed - Nov 16 - 10:30 - Oil Inventories
Thu - Nov 17 - 08:30 - Jobless Claims
Thu - Nov 17 - 08:30 - Housing Starts/Building Permits
Thu - Nov 17 - 10:00 - Philadelphia Fed
Fri - Nov 18 - 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.
