Stocks continued their drift with a small surge on the open and then a drift lower throughout the day. Basically, the major index ETFs drifted back to their prior closed and finished the day virtually unchanged. Trading has been listless for 5-6 days now. Stocks moved sharply higher on August 3rd, extended their gains on August 6th and 7th, and then went adrift the last five days. All in all, it amounts to a high-level consolidation. Notice that SPY breached the 141 level on Tuesday and is at its April high. It is short-term overbought and at possible resistance, but clearly shows more upside momentum and than downside momentum overall.
On the 60-minute chart, the S&P 500 ETF (SPY) attempted to breakout of its flag formation, but could not hold the breakout and fell back into the consolidation. After a 3.5% surge since early August and a 7.5% advance since late June, a correction or consolidation is perfectly normal. Even though a break below flag support would be short-term negative, the bigger uptrend is still the dominant force and broken resistance could turn into support around 139. RSI remains in bull mode with a support zone in the 40-50 area.
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A relatively strong retail sales report weighed on treasuries as the 20+ Year T-Bond ETF (TLT) fell back to support in the 124 area. With this decline, TLT established a clear resistance level at 126.50. Traders should watch this level for a breakout that would reverse the short-term downtrend. Stocks should hold their gains as long as TLT trends lower. A breakout in TLT would be negative for stocks.
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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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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:
Wed - Aug 15 - 08:30 - CPI
Wed - Aug 15 - 08:30 - Empire Manufacturing
Wed - Aug 15 - 09:15 - Industrial Production
Wed - Aug 15 - 10:00 - NAHB Housing Market Index
Wed - Aug 15 - 10:30 - Crude Inventories
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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