***Executive Summary***

• Stock Market Stance Remains Bearish
• Mixed Breadth on Recovery
• Volume Returns to the Market
• SPY Remains Below Support Break
• QQQQ Gets Oversold Bounce
• UUP Stalls Near Resistance
• GLD Continues to Firm Near Support
• USO Edges Lower
• TLT Stalls with Doji at Key Retracement (video link)

***Stock Market Stance*** Bearish on 15-January. Despite yesterday's recovery, the bulk of the medium-term evidence remains with bears. There were negative breadth extremes as stocks fell sharply on Wednesday. In addition, DIA, SPY and IWM clearly broke below their late December lows. Lower lows are not part of an uptrend. They are part of a downtrend. The major-index ETFs were short-term oversold yesterday and the recovery is viewed as an oversold bounce for now. Barring follow through on big breadth and big volume, I think bounces are to be sold at this stage. With my stock market stance now bearish, I will turn to the 60-minute charts for bearish setups that offer a good risk-reward ratio. See Wednesday's commentary for details on combining daily charts (medium-term) with 60-minute charts (short-term).

Market moving events for the next few trading days:

• Friday: CPI, Industrial Production, Michigan Sentiment
  -Earnings: Schwab, Citigroup, Johnson Controls
• Monday: Market Closed
  -Earnings: HB Fuller, Logitech
• Tuesday: No economic reports.
  -Earnings: Bank of America, J&J, State Street, IBM
• Wednesday: Crude Inventories
  -Earnings: Air Products, US Bancorp, Citrix, Ebay, F5
• Thursday: Initial Claims, Housing Starts, Money Supply
  -Earnings: Fifth Third, SW Air, AMD, Google, Microsoft
• Friday: Natural Gas Inventories
  -Earnings: GE, Harley Davidson, Schlumberger, Xerox

***Technical Highlights***

***Mixed Breadth On Recovery*** Despite a nice recovery on Thursday, breadth finished mixed with AD Net% in positive territory (+44%) and AD Volume Net% in negative territory (-3%). The negative reading for AD Volume Net% can be attributed to weakness in banks. Citibank and Bank of America accounted for over 1 billion shares. Both closed sharply lower on the day. The +44% reading in AD Net% is impressive as eight of nine sector finished the day with gains. However, I do not think it was enough to counter the negative breadth extremes seen on Wednesday.

***Volume Finally Expands*** Nasdaq and NYSE volume levels were above average for the first time this year. NYSE volume surged to 1.46 billion shares, while Nasdaq volume surged to 2.5 billion shares. The day can be broken down into two parts: the decline and the recovery. Even though volume was high for the day, roughly 1/2 went into the decline and 1/2 into the recovery. The overall gain on the day was modest and I think Thursday's trading was more about indecision than decision. At the very least, the decisions were split and cancelled out each other. There was the decision to sell in the morning and the decision to buy in the afternoon.

***Major-index ETFs***

***Medium-term Trend*** Is there a medium-term trend under way? QQQQ, SPY and IWM have gone nowhere since mid October. That's three months of choppy trading with at least four swings greater than 10%. After breaking their late December lows on Wednesday, the major-index ETFs came back from the abyss and firmed on Thursday. The recovery was impressive, but the end results were not. On a closing basis, the gains from Wednesday to Thursday were minimal. After a 12-14% decline in 6-7 days, the major-index ETFs were oversold and ripe for a bounce.

Before starting my analysis today, I cleared the charts of all prior analysis. Starting with a clean slate, I realized that all three ETFs found support near their October lows. In fact, there are support zones extending from the October lows to the December lows. It is also worth noting that the major-index ETFs retraced 50-62% of their Nov-Jan advances with the decline over the last seven days. The combination of support, retracements and oversold conditions led to yesterday's recovery. Is this recovery for real or just a dead cat bounce? I want to see convincing follow through before taking this recovery seriously. This means strong breadth (+80% or higher) and above average volume. Wednesday's gaps remain unfilled for QQQQ, SPY and IWM. In addition, SPY and IWM are still below their late December lows. A one day recovery is not enough to reverse the damage of the prior six days.

***Short-term Trend*** The intraday swing was huge with IWM and QQQQ breaking short-term resistance levels. However, this huge swing pales in comparison to the prior decline. As noted above, Wednesday's continuation gaps have yet to be filled and this surge came off a lower low. We could see some follow through early today and then a fade into the afternoon. I am marking resistance levels based on the 50% retracement and Tuesday's consolidation. While a break above these levels would show follow though, I will wait to judge volume and breadth before considering it a valid breakout. With my trading stance currently bearish, I would be more inclined to expect a rising wedge or flag to take shape over the next few days. Such patterns are bearish consolidations that evolve from oversold conditions. I would expect a peak and reversal somewhere around the 50% retracement marks.

***Inter-Market Charts***

***Dollar*** The European Central Bank (ECB) cut its key rate to 2% with a 1/2% whack on Thursday. Its policy statement left room for further cuts and this could weigh on the Euro over the next few months. Despite a long-term downtrend for the Euro Trust ETF (FXE), it is currently oversold and at support. News from the European Central Bank is out and we could see an oversold bounce now.

There is no change in the analysis of the US Dollar Index Bullish ETF (UUP). UUP surged above 25.5 on Tuesday and stalled on Wednesday and Thursday. The ETF is short-term overbought now and ripe for a pullback or consolidation. In addition, retracement resistance and resistance from broken support are coming into play around 25.6-26. It is also worth noting that the advance over the last four weeks looks like a rising flag. Should this pattern turn out to be bearish, UUP is likely to peak near current levels. It would take a break below support at 24.7 to confirm the bearish flag. On the 30-minute chart, the current swing remains up and I am marking short-term support at 25.4. For those looking to get a jump on the bearish flag, a move below 25.4 would produce the first bearish signal.

***Gold*** Should the Euro bounce and the Dollar fall, the streetTRACKS Gold ETF (GLD) would likely move higher. After a sharp decline on Monday, GLD firmed with three indecisive candlesticks around 80-81. Support in this area stems from broken resistance and a 50-62% retracement of the December advance. The first key to strength would be a breakout on the 30-minute chart. GLD formed a falling flag over the last few weeks. The ETF continued lower after the gap with a series of lower lows and lower highs the last four days. A break above 81.2 would be the first bullish signal. Follow through with a move above 83 would start filling gap and I would then expect further strength towards 90.

***Oil*** The United States Oil Fund ETF (USO) is still trying to firm, but the series of lower lows and lower highs remains in place on the 30-minute chart. First, the daily chart shows a doji, small white candlestick and two mini-hammers the last four days. The decline is definitely slowing as the ETF closed at 30.65 on Monday and 30.18 on Thursday. On the 30-minute chart, USO has been working its way lower over the last five days and we have yet to see a breakout. I am lowering key resistance to 32 and a break above this level would argue for a rally above the early January high. Oil may even get a little help from the stock market as the futures are pointing to a strong open after yesterday's recovery.

***Bonds*** After a surge above 115 on Wednesday, the iShares 20+Yr T-Bond ETF (TLT) formed an indecisive doji on Thursday. This indecision can be attributed to the sharp recovery in the stock market. Sudden indecision can foreshadow a reversal. A sharp move lower would argue for that reversal and target a move towards 104-105. On the 30-minute chart, TLT stalled at the 50% retracement mark. The gap and surge from Wednesday are bullish, but bonds are likely to come under pressure if the stock market rallies. I am setting minor support at 115 and a break below this level would argue for further weakness. The third chart shows the UltraShort T-Bond ETF (TBT) with a potential bull flag. A break above flag resistance would argue for a continuation of the prior advance and target further strength towards 50-55. The Consumer Price Index (CPI) is due out this morning and bonds will take their early cues from this report.

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.