***Executive Summary***
- Stock Market Stance Remains Bullish
- SPY Maintains Medium-term Uptrend
- Wednesday's Gap Holds for QQQQ
- Dollar Firms at Flag Support
- Gold Gaps to Channel Resistance
- Oil Firms At Retracement Support
- Bonds Firm Ahead of Employment Report
- Video Includes: EMC, YHOO, PNC, CVX and OIH
(video link)
***Stock Market Stance*** No change. Bullish on 8-December. While I would have preferred a pullback on modest breadth, I still consider Wednesday's decline as a short-term pullback within a medium-term uptrend. This means I expect the major-index ETFs to find support above their late December lows. After a big surge last week, a pullback that retraces 50-62% is quite normal. The employment report looms today and this could further spook traders. I would not be surprised to see a negative reaction and gap down on Friday AM. However, the medium-term trends are up and there is a good chance that this gap does not hold. In other words, the major-index ETFs could firm after a gap and rally on Friday.
Market moving events for the next few trading days:
- Friday: Employment Report
-Earnings: KB Home, Emmis Comms, AZZ Inc
- Monday: No economic reports.
-Earnings: Adtran, Schwab, Alcoa
- Tuesday: No economic reports.
-Earnings: State Street, HB Fuller, Linear Tech
- Wednesday: Retail Sales, Crude Inventories
-Earnings: AMR, Lecroy, Clarcor, Xilinx
- Thursday: Initial Claims, PPI, Philly Fed
-Earnings: Blackrock, Merrill Lynch, Intel, Teekay
- Friday: CPI, Industrial Production, Michigan Sentiment
-Earnings: Johnson Controls, LaBranch, Sony
***Major-index ETFs***
***Pullback After Surge*** QQQQ, SPY and IWM are working their way higher within rising flag/wedge advances. Based on analysis of prior wedges, I expect a choppy advance to extend for 8-10 weeks. See Wednesday's commentary for details on the March 2001 and March 2008 wedges. These wedges are currently in their seventh week. Even though I put time and price targets, I will wait for some bearish evidence before actually turning bearish. These wedges could exceed or fall short of their price-time targets. At the very least, I will wait for a stall or reversal off resistance before considering shorts. Pullbacks after higher highs are normal during a rising wedge. So far, the decline over the last two days looks like a pullback. The major-index ETFs remain well above their late December lows and have yet to break the wedge trendlines. We could see another day or two of weakness, but I expect support above the December lows. See the 60-minute chart analysis for details.
***Gaps and Breaks Holding*** On the 60-minute charts, the major-index ETFs gapped down on Wednesday and broke swing support. The short-term trend is up by virtue of the higher highs on 2-5 January. The down gaps and swing support breaks are negative, but still within the realm of a normal pullback. The blue dotted lines shows the 50-62% retracement zones. All three ETFs firmed and bounced off the top of these zones on Thursday. The bounce was not that strong though. The next significant move is at the mercy of the employment report. I would not be surprised to see a gap down into these retracement zones. What happens after the gap is more important that the actual gap. With the medium-term trends up and my trading stance bullish, I would also not be surprised to see firmness and a bounce after a gap into the retracement zones.
***Inter-Market Charts***
***Dollar*** The Dollar is also waiting on the employment report with baited breath. Non-Farm Payrolls are expected to decline by over 500,000 for the second straight month. That means more than one million jobs have been lost in two months. A truly staggering statistic.
While this is potentially negative for the Dollar, it should be seen in relative terms. Currencies come in pairs (Euro/Dollar, Dollar/Yen, Pound/Dollar). The US definitely has its economic problems, but we are not alone in this mess. The Dollar still maintains a certain safe-haven status when it comes to currencies. Even so, the market sometimes focuses on the present. This means serious job losses could weigh on the Dollar over the next few days. Once this passes, the currency markets will then turn to similar economic problems in Europe and Japan, which could then boost the Dollar.
Today I am showing the daily and 30-minute charts for the US Dollar Index Bullish ETF (UUP). A rising flag formed over the last few weeks with support around 24.6. Further weakness below this level would be technically bearish. The 30-minute chart sports a falling wedge and a break above 25.05 would be bullish. Even if UUP break flag support with a big gap down today, be careful of an over-reaction. This occurred on 29-Dec when UUP gapped down, firmed and then broke flag resistance the next day.
***Gold*** Gold will likely move opposite the Dollar. Therefore a break down in the greenback would be bullish for gold, and visa versa. On the daily chart, the streetTRACKS Gold ETF (GLD) is advancing within a rising channel. The ETF hit resistance just below its Sep-Oct highs and stalled over the last few weeks. There is a lot of support in the low 80s and the medium-term trend is up as long as support at 80 holds. On the 30-minute chart, GLD surged at the end of December and fell in early January. The ETF bounced off the late December lows with a surge on Thursday and a break above 85 would be short-term bullish.
***Oil*** The United States Oil Fund ETF (USO) firmed on Thursday with a small white candlestick. The medium-term trend remains down, but USO could bounce further with a move into the resistance zone around 40-45. On the 30-minute chart, USO declined to retracement support around 31.5-33. This is the area to expect a reversal and watch for further strength. Failure to hold Thursday's lows would put the reversal on hold and lead to further weakness.
***Bonds*** The iShares 20+Yr T-Bond ETF (TLT) is also waiting on the employment report. A worse-than-expected job loss could spark a rally in bonds. TLT declined to support around 110-112 and firmed over the last three days. The bond ETF was oversold above 120, but the decline to 112 alleviated these overbought conditions. The resolution of this consolidation will dictate the next move. With the bigger trend up, traders should be on guard for an upside breakout on the 30-minute chart.
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.
