Even though the Euro and Treasuries surged off support over the last two days, stocks are holding up and oil remains near $100. It is a paradox and something needs to give here. Strength in Treasuries and the Dollar is tied to the risk-off trade, while strength in stocks and oil is tied to the risk-on trade. Despite a drop in the Euro, the German DAX Index ($DAX) has yet to break support from the October-November lows. This is the key index to watch in Europe. Not much as changed for the S&P 500 ETF (SPY). Overall, the ETF remains within a triangle formation and the noose is tightening as the range contracts. This also means the swings are growing shorter, which translates into faster signals. A move above 127 would break triangle resistance, while a move below 123 would break support. Within the triangle, SPY broke flag resistance with a surge above 126. The breakout held, but there was no follow through. I am now marking short-term support near the flag lows (124.50). A break below this level would provide the first sign of weakness and increase the chances of a triangle support break. The indicator window shows RSI in a contracting range as well. Look for a range break to confirm any signals in SPY.
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The 20+ year Bond ETF (TLT) bounced off support on Monday and then stalled on Tuesday. The overall picture remains unchanged. The bigger trend is up with the surge and breakout. A falling flag took shape after this surge. A break above 119 would signal a continuation higher. A breakout in Treasuries would favor the risk-off trade and be bearish for stocks.
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The US Dollar Fund (UUP) reversed its downtrend with a surge-breakout above 21.70, formed a falling flag and then broke flag resistance with a surge last week. Despite a pullback on Friday, the ETF held support and surged back above 21.90 on Tuesday. This reinforces support in the 21.60 area. Further strength in the Dollar, which means weakness in the Euro, could weigh on stocks, especially if Treasuries start moving higher too.
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The US Oil Fund (USO) remains stronger than the stock market. While SPY peaked in late October and formed a lower high in early November, oil continued to march higher with a move above its late October high last week and forged new highs for the move this week. Strength in oil could be a sign of increased demand, which would be positive for the economy. Alternatively, it could be just an issue of decreasing supplies. Whatever the reason, oil remains strong. First support is set at 37.50 for USO and key support remains in the 36 area.
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The Gold SPDR (GLD) is currently consolidating within an uptrend. The ETF broke resistance in the 170 area and this area turned into support with a successful test last week. After a bounce off support, GLD formed a falling flag. I had to redraw the lines, but the pattern remains. A break above 174 would signal a continuation higher. A break below key support at 170 would be short-term bearish.
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Key Economic Reports:
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.
