Stocks continued their meandering ways on Wednesday, but the major index ETFs managed to close with gains. The Russell 2000 ETF (IWM) led the way with a .88% gain and the S&P 100 ETF (OEF) lagged with a .02% gain. Even though relative strength in small-caps is welcome, the paltry gains left more to be desired. Nevertheless, keep in mind that stocks started the week overbought and refuse to buckle. Even though volume is low, buying pressure is outpacing selling pressure and prices are still rising. Price is really the only thing that matters, especially to the bottom line. The PerfChart below shows MDY, QQQ and IWM leading over the last six days.
The offensive sectors are also performing well over the last six days. The Sector PerfChart shows XLK, XLY, XLI and XLF all outperforming the S&P 500. XLB, XLP and XLU are the three laggards as they show losses since August 8th. Continued relative strength in technology, consumer discretionary and finance is a positive for the market.
There is not much change on the 60-minute chart for SPY. The ETF surged in early August and then consolidated the last six days. Consolidation support resides just below 140 and the ETF is trading near consolidation resistance. Even though the uptrend has slowed, the cup is still half full. A break below consolidation support would argue for a pullback within the bigger uptrend. RSI remains in bull mode and well above its support zone (40-50).
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Treasuries continued their freefall as the 20+ Year T-Bond ETF (TLT) broke support at 124. TLT is quite oversold, but the trend is clearly down. 124 represented a significant support level based on the June lows. Broken support now turns into first resistance. Key resistance remains at 126.50
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No change. The Dollar, and by extension the Euro, could hold the key for gold and stocks. Strength in the Dollar would be negative for stocks and gold, while weakness would be positive. The big trend for the US Dollar Fund (UUP) is up with support on the daily chart set around 22.40 from the June lows. The short-term trend is down as a falling wedge takes shape. UUP bounced within this wedge, but we need to see follow through for a breakout to reverse this downtrend. RSI resistance is set at 60.
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No change. As with the various stock indices, the US Oil Fund (USO) consolidated after a sharp gain. A falling flag formed with resistance around 35. A breakout would signal a continuation higher and we could then see a move to the upper 30s. Of course, the direction of oil will depend on the Dollar and stock market. A weak Dollar and strong stock market would facilitate a breakout, while a strong Dollar and weak stock market would lead weigh. The late June trend line and broken resistance mark first support in the 33.5 area. RSI support is set in the 40-50 zone.
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No change. The Gold SPDR (GLD) failed to break resistance and fell back rather sharply the last few days. This failure is negative and reinforces the validity of this resistance level. Also keep in mind that the long-term trend for gold is down and has been since the August 2011 peak. The next support zone resides around 153.5-154 and a break below this level would be outright bearish. Watch the Dollar because a wedge breakout in UUP would be negative for bullion.
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Key Reports and Events:
Thu - Aug 16 - 08:30 - Initial Claims
Thu - Aug 16 - 08:30 - Housing Starts/Building Permits
Thu - Aug 16 - 10:00 - Philadelphia Fed
Fri - Aug 17 - 09:55 - Michigan Sentiment
Fri - Aug 17 - 10:00 - Leading Economic Indicators
Fri – Aug 31 – 09:00 – Jackson Hole Central Bank Symposium
Charts of Interest: Tuesday and Thursday
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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