The decline in stocks accelerated on Thursday with QQQ and IMW falling over 2% and SPY loosing around 1.5%. This could be the beginning of the end, or it could simply be the middle of a free fall (see August 2011). Stocks are simply in falling knife mode. Of note, the S&P MidCap 400 SPDR (MDY) led the market lower on Thursday with a 2.7% decline on the highest volume since early April. SPY volume is also picking up, but it is nowhere near the selling climax levels seen in August.
Small-caps and mid-caps were hit by a fall in the Philly Fed Index, a decrease in the Leading Economic Index and flat employment growth. These are issues that affect the domestic economy and justifiably hits home hard. Investors have been battling a host of bigger issues the last two weeks and these domestic reports provided the straw to break the bull's back. It is unlikely to get better overnight. Greece remains an ongoing concern, JP Morgan Chase's loss is growing and a slew of Spanish banks were downgraded my Moody's on Thursday evening. XLF may find support in the 13.25-13.75 area and XLY just broke a major support level.
There is not much change on the 60-minute chart as the S&P 500 ETF (SPY) closed below 131 for the first time since January 31st. The ETF is down 7.7% from its April high. A 10% correction would extend to 128. SPY remains oversold and now in a free fall as buying pressure completely dried up. I still think this decline will likely end with some sort of washout or selling climax, which could be beginning now. Best guess for a spike low or a bounce? The 130 level (1300 $SPX) represents a nice round number and the 200-day SMA resides around 128 (1280 $SPX).
**************************************************************************
Treasuries are going parabolic as stocks and the Euro head into a selling climax or meltdown. The 20+ Year T-Bond ETF (TLT) is up over 10% from its April low and over 6% from its May low. The move over the last six days has been almost straight up. Treasuries will continue to attract money as long as the Euro and stocks freefall. This week's consolidation marks first support at 120.5 and key support remains at 115.5-116.
**************************************************************************
The Dollar actually stalled on Thursday as the Euro firmed. However, this is just a stall or rest within a clear uptrend. UUP broke the April-May highs with the strongest advance of the year. The ETF is as overbought as TLT and ripe for a corrective period, which could involve a sideways movement as the Eurozone moves into a hiatus ahead of the June 17th Greek elections. Broken resistance in the 22.20 area turns first support.
**************************************************************************
The US Oil Fund (USO) is also severely oversold and ripe for a consolidation or bounce after a 12% decline this month. Broken support turns first resistance in the 36-36.2 area. Key resistance is based on last week's highs in the 37-37.2 area.
**************************************************************************
Gold broke free with a big oversold bounce on Thursday. A decline in stocks and surge in the Dollar took their toll the prior three weeks, but gold had finally had enough. A little firmness in the Euro was all it took to remind participants that gold could actually be a safe haven, especially if you are holding Euros. The May downswing reversed, but the short-term trend remains down because RSI has yet to clear 60 and GLD has yet to break a resistance level. GLD stalled around 153 with a tiny pennant yesterday and we could see another pop to the 154-155 area.
**************************************************************************
Key Economic Reports:
Fri - May 18 - 10:00 - TGIF
Sun - Jun 17 - 10:00 – Greek Elections
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.
There is not much change on the 60-minute chart as the S&P 500 ETF (SPY) closed below 131 for the first time since January 31st. The ETF is down 7.7% from its April high. A 10% correction would extend to 128. SPY remains oversold and now in a free fall as buying pressure completely dried up. I still think this decline will likely end with some sort of washout or selling climax, which could be beginning now. Best guess for a spike low or a bounce? The 130 level (1300 $SPX) represents a nice round number and the 200-day SMA resides around 128 (1280 $SPX).
**************************************************************************
Treasuries are going parabolic as stocks and the Euro head into a selling climax or meltdown. The 20+ Year T-Bond ETF (TLT) is up over 10% from its April low and over 6% from its May low. The move over the last six days has been almost straight up. Treasuries will continue to attract money as long as the Euro and stocks freefall. This week's consolidation marks first support at 120.5 and key support remains at 115.5-116.
**************************************************************************
The Dollar actually stalled on Thursday as the Euro firmed. However, this is just a stall or rest within a clear uptrend. UUP broke the April-May highs with the strongest advance of the year. The ETF is as overbought as TLT and ripe for a corrective period, which could involve a sideways movement as the Eurozone moves into a hiatus ahead of the June 17th Greek elections. Broken resistance in the 22.20 area turns first support.
**************************************************************************
The US Oil Fund (USO) is also severely oversold and ripe for a consolidation or bounce after a 12% decline this month. Broken support turns first resistance in the 36-36.2 area. Key resistance is based on last week's highs in the 37-37.2 area.
**************************************************************************
Gold broke free with a big oversold bounce on Thursday. A decline in stocks and surge in the Dollar took their toll the prior three weeks, but gold had finally had enough. A little firmness in the Euro was all it took to remind participants that gold could actually be a safe haven, especially if you are holding Euros. The May downswing reversed, but the short-term trend remains down because RSI has yet to clear 60 and GLD has yet to break a resistance level. GLD stalled around 153 with a tiny pennant yesterday and we could see another pop to the 154-155 area.
**************************************************************************
Key Economic Reports:
Fri - May 18 - 10:00 - TGIF
Sun - Jun 17 - 10:00 – Greek Elections
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.
Learn More
