***Executive Summary***

• Happy New Year – once more!
• Stock Market Stance Remains Bullish
• Positive breadth extremes for QQQQ
• QQQQ-SPY-IWM Exceed December highs
• QQQQ Breaks Flag Resistance
• Dollar Index Challenges Short-term Resistance
• Gold Stalls in Resistance Zone
• USO Extends Oversold Bounce
• TLT Decline into Gap Zone (video link)

***Stock Market Stance*** No change. Bullish on 8-December. It will soon be time for truth or consequences. Stocks ended the year with a three day surge as a few bulls tried to get a jump on January. The real fireworks will likely start this week when volume returns. For now, I think the bulk of the medium-term evidence remains bullish and this favors further gains. Breadth remains bullish overall. The major-index ETFs exceeded their December highs. Small-caps and techs are showing leadership. Until some contrary bearish evidence emerges, my price and time targets remain. For the major-index ETFs, I expect an advance towards the Oct-Nov highs over the next 3-4 weeks. Keep in mind that I still think this is a corrective rally within a bigger downtrend. In other words, it is considered a bear market rally.

Market moving events for the next few trading days:

• Monday: Construction Spending
  -Earnings: Finish Line, Global Payment
• Tuesday: Factory Orders
  -Earnings: American Greetings
• Wednesday: Crude Inventories
  -Earnings: Constellation Brands, Bed Bath Beyond, Monsanto, Wd-40
• Thursday: Initial Claims
  -Earnings: Helen of Troy, Texas Industries, Apollo Group
• Friday: Employment Report
  -Earnings: KB Home, Emmis Comms, AZZ Inc

***Technical Highlights***

***QQQQ Breadth Surges*** Of the major-index ETFs, QQQQ breadth was far and away the strongest on Friday. AD Net% reached +98% and AD Volume Net% hit +99%. Even though market volume was below average on Friday, these breadth surges show serious buying in the technology sector. QQQQ has now forged positive breadth extremes on 16-Dec and 2-Jan. A positive breadth extreme occurs when AD Net% and/or AD Volume Net% exceed +90%. This is bullish for QQQQ, the technology sector and the market overall. The tech sector represents the appetite for risk. A healthy appetite for risk is bullish for the market overall.

***Major-index ETFs***

***Breaking December Highs*** QQQQ, SPY and IWM surged on Friday and broke above their December highs. This breakout to new highs for the move shows strength. Looking at price action since late November, the major-index ETFs surged (21-Nov to 8-Dec) and then consolidated (9-Dec to 29-Dec). IWM was the strongest during the consolidation phase because it held well above its 12-Dec low. In contrast, SPY and QQQQ tested support from their 12-Dec lows later in the month. With a move above their December highs on Friday, all three are showing uniform strength. My upside targets remain in place. I expect a move towards the Oct-Nov highs over the next few weeks. With Friday's big surge, the major-index ETFs are now over half way there. I am also raising key support on the daily charts. Failure to hold the mid December lows would be bearish.

***Swinging Higher*** QQQQ broke flag resistance, SPY broke trading range resistance and IWM forged another higher high. The flag and range breakouts are clearly bullish, as is another higher high for IWM. However, all three are short-term overbought after sharp advances over the last three days. The magenta trendlines extending up from late December define the current upswing. This is one sharp three day surge. A break below the magenta trendlines would be negative, but some sort of pullback can be expected after such big gains. These green lines mark minor support and the area I would expect support on a pullback. With the daily chart/trend bullish, I would expect pullbacks to be relatively shallow and offer buying opportunities.

***Inter-Market Charts***

***Dollar and Euro*** The U.S. Dollar Index ($USD) is perking up in Asian and European trading. With the index trading around 82.5 this morning, a short-term breakout at 82 looks imminent. The upside target is broken support around 84-85. The Euro Trust ETF (FXE) broke down on 31-Dec with decline through flag support. This signal targets further weakness towards the support zone around 131-135.

***GLD and GDX*** With the Dollar rising in Asia and Europe, gold futures are under pressure this morning. The streetTRACKS Gold ETF (GLD) surged into a resistance zone in December and stalled over the last four trading days. Three of the last four candlesticks were doji. The resistance zone stems from the Jul-08 trendline and Sep-Oct highs. This resistance zone defines the long-term downtrend for bullion. At the very least, GLD looks vulnerable to a pullback towards support in the low 80s. If gold comes under pressure, then the Gold Miners ETF (GDX) is also likely to move lower. GDX formed a long white candlestick on Wednesday and a doji on Friday. Together, these make a harami-cross, which signals indecision that can foreshadow a short-term reversal. Should GLD pullback to the low 80s (-6%), GDX could pullback towards the upper 20s.

***USO and OIH*** The United States Oil Fund ETF (USO) got a decent bounce on 31-Dec and continued higher on Friday. Oil is long due for an oversold bounce and the ETF broke the late September trendline on Friday. The 40-45 area remains my upside target zone for this bounce. USO could conceivably move higher with a bigger retracement, but I will keep my target modest for now. With a bounce in oil came a bounce in the Oil Service HOLDRS (OIH). The ETF broke wedge resistance over the last few days and is now challenging the upper trendline of a falling price channel. There is also resistance in the low 80s from the December highs. Despite these obstacles, my upside target remains the 90-100 area. After Friday's big move, the risk-reward ratio for new long positions is unpalatable though.

***Bonds Break Down*** The iShares 20+Yr T-Bond ETF (TLT) moved sharply lower as money moved out of bonds and into stocks. TLT gapped above 120 on 17-Dec and then consolidated for two weeks. The sharp decline back into the gap zone is negative and argues for at least a pullback from overbought conditions. The prior consolidation marks the first support target around 110-112. The UltraShort T-Bond ETF (TBT) formed a bullish engulfing on Wednesday and then surged on Friday. Volume expanding on both days as the bond bears moved in force. The confirmed bullish engulfing is, well, bullish. The December consolidation marks the resistance target around 43-45.

Good day and good trading -Arthur Hill

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Disclaimer: Arthur Hill is not a registered investment advisor. The analysis presented is not a solicitation to buy, avoid, sell or sell short any security. Anyone using this analysis does so at his or her own risk. Arthur Hill and TD Trader assume no liability for the use of this analysis. There is no guarantee that the facts are accurate or that the analysis presented will be correct. Past performance does not guarantee future performance. Arthur Hill may have positions in the securities analyzed and these may have been taken before or after the analysis was present.
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About: The Daily Swing is posted every trading day around 6AM ET and focuses on short-term strategies for QQQQ, SPY and IWM. In addition, at two stock setups are featured every day with a detailed trading strategy. As warranted, coverage extends to broad market topics, key sectors and industry groups and inter-market securities (gold, bonds, the Dollar and oil).
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Sources: Data from Bloomberg.com, CBOT.com, Kitco.com and ino.com; Charting from Metastock (equis.com). Closing data from Reuters.com, eSignal.com, MS QuoteCenter and Yahoo! Finance.