Is the second shoe about to drop? Stocks fell sharply on the open Tuesday and then consolidated since this open. Short-term, and I do mean very short-term, the S&P 500 ETF (SPY) held the gap down and formed a pennant consolidation on the 60-minute chart. A break below 140 would signal a continuation lower and open the door to a retracement of the nine day surge from 134 to 141. A 50% retracement of this move would carry back to the 137.5 area, which also marks support from broken resistance. In the indicator window, RSI is stalling near 50 with a consolidation of its own. StochRSI moved to zero a couple times and has yet to recover. Look for StochRSI to surge above .60 to get a bounce started or signal improving upside momentum.
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Softness in stocks and oversold conditions produced a decent bounce in treasuries. The 20+ Year T-Bond ETF (TLT) moved above Friday's high to challenge first resistance around 112. While a breakout would be positive, I still think this is just an oversold bounce within a bigger downtrend. Broken support turns next resistance in the 114.5-115 area.
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The US Dollar Fund (UUP) got a feeble bounce off the 61.80% retracement line and this bounce looks like a rising wedge (pennant). A move below Wednesday's low would signal a continuation lower. For now, the wedge is rising and the 2-3 day trend is up. It will continue until proven otherwise with a pennant break. StochRSI bounced from oversold levels and further strength above .50 would be bullish for short-term momentum.
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These little rising wedge/pennant formations are everywhere. The US Oil Fund (USO) failed to hold its falling wedge breakout and plunged below 41 on Tuesday. An oversold bounce then produced a small rising wedge (pennant) and a break below this pattern would signal a continuation lower. Overall, the three week trend for oil is down with USO resistance set at 41.50 and RSI resistance at 65.
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The Gold SPDR (GLD) failed at resistance in the 162 area and broke the trendline extending up from last week. It is a short 3-4 day trendline, but the break signals a continuation lower within a bigger downtrend. This also reinforces resistance in the 162 area. A move above Monday's high would break resistance and could open the door to a decent rally.
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Key Economic Reports:
Thu - Mar 22 - 08:30 - Initial Claims
Thu - Mar 22 - 10:00 - FHFA Housing Price Index
Thu - Mar 22 - 10:00 - Leading Indicators
Fri - Mar 23 - 10:00 - New Home Sales
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.
About the author:
Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London.
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