Stock futures are trading sharply higher on news (rumors) of an Italian bailout. Also note that it is a big week on the economic front. See the listing of economic reports further down in this commentary. Market moving rumors and innuendo are all part of the game these days. Traders can expect big gaps up on positive rumors, and big gaps down on negative rumors. As far as I can tell, most of the proposed solutions are stop-gap measures that will not totally solve the problem. This goes for the US and Europe. It is going to be a long slog. Stocks were way oversold and ripe for at least an oversold bounce. Bonds and the Dollar were overbought and ripe for a pullback. At this point, a bounce in stocks would be considered a corrective advance within a bigger downtrend. On the S&P 500 ETF (SPY) chart, the ETF declined over 8% the last nine days. RSI became oversold on the 17th and remained below 40 all last week. Talk about a strong downtrend. At this point, we can start estimating resistance levels for an oversold bounce. The last pennant and 38.2% retracement mark the first zone in the 119-120 area. Further up, broken supports, the first pennant and the 50-61.80% retracement zone mark resistance in the 122-123 area.
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In an interesting twist, stocks and treasuries both declined on Friday. These two are usually negatively correlated. It is just one day, but selling pressure in treasuries could release some funds for the stock market. Nevertheless, the bigger trend for treasuries remains up and any weakness is deemed a correction within a bigger uptrend. On the price chart, the 20+ year Bond ETF (TLT) broke resistance in the 118-119 area and this zones turns into the first support area to watch. A move back would be considered a post-breakout throwback. Key support remains at 115 for now.
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The US Dollar Fund (UUP) soared last week and is up some 3.5% since the mid November low. This is a huge move for a currency. The early October high marks the next resistance level in the 22.60 area. I am setting first support around 21.9-22. This area stems from broken resistance and a consolidation low from mid November. The ETF is overbought and any positive news/rumors out of Europe could produce a correction back to this breakout zone.
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The US Oil Fund (USO) continues to hold up better than the stock market. Stocks got hammered last week, but USO held above Monday's low and consolidated. After a sharp decline in mid November, the ETF formed a triangle last week. A break above triangle resistance would be bullish, while a break below triangle support would be bearish. The indicator window shows USO relative to SPY. This Price Relative is moving straight up, which means USO shows relative strength.
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The Gold SPDR (GLD) also held up better than the stock market last week. This is important because gold and stocks have been positively correlated since early October. GLD surged on Monday and then consolidated the rest of the week with a triangle. An upside breakout at 165.50 would signal a continuation higher and argue for a short-term trend reversal. The consolidation zone around 167-168 marks the first resistance area. Broken support around 170 marks second resistance.
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Key Economic Reports:
Mon - Nov 28 - 10:00 - New Home Sales
Tue - Nov 29 - 09:00 - Case-Shiller 20-city Index
Tue - Nov 29 - 10:00 - Consumer Confidence
Wed - Nov 30 - 07:00 - MBA Mortgage Index
Wed - Nov 30 - 07:30 - Challenger Job Cuts
Wed - Nov 30 - 08:15 - ADP Employment Report
Wed - Nov 30 - 09:45 - Chicago PMI
Wed - Nov 30 - 10:00 - Pending Home Sales
Wed - Nov 30 - 10:30 – Oil Inventories
Wed - Nov 30 - 14:00 - Fed's Beige Book
Thu - Dec 01 - 08:30 - Jobless Claims
Thu - Dec 01 - 10:00 - ISM Index
Thu - Dec 01 - 10:00 - Construction Spending
Thu - Dec 01 - 15:00 - Auto/Truck Sales
Fri - Dec 02 - 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.
