***Executive Summary***
- Stock Market Stance Remains Bearish
- Weak Breadth on Advance
- SPY Bounces off Support Zone
- QQQQ Breadth January Trendline
- UUP Surges Back to Resistance Zone
- GLD Establishes Support
- USO Continues to Slide Lower
- TLT Breaks Down with Gap
- Stock Setups by 8:30AM
(video link)
***Stock Market Stance*** Bearish on 15-January. The bulk of the evidence is currently bearish and this points to weakness over the coming weeks. QQQQ, SPY and IWM broke below their late December lows last week. The post-Christmas rally was completely erased as selling pressure returned in January. There were negative breadth extremes on 14-Jan. New 52-week lows exceed new 52-week highs and new lows are expanding. The financial sector continues to shows relative weakness and lead the way lower. In addition to bearish technical factors, earnings season kicks into full gear this week. If last week's reports are any guide, this is going to be one of the worst quarters on record. Even though the stock market may look past earnings we need to see a robust advance on big volume and strong breadth before considering a bullish trading stance.
Market moving events for the next few trading days:
- 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
- Monday: Existing Home Sales, Leading Indicators
-Earnings: Caterpillar, Amer Express, SanDisk
***Technical Highlights***
***Positive Day on Weak Breadth*** After a shaky start on Friday, stocks rallied and the major-index ETFs finished with modest gains. The Nasdaq and Nasdaq 100 both gained over 1%. Eight of the nine sectors were highs. Financials were lower again on Friday. Despite a pretty good day overall, the breadth stats for the S&P 1500 ETF (ISI) were not impressive at all. AD Net% finished at +39% and AD Volume Net% finished at +15%. It is going to take more than this to undo the bearish breadth signals from last week.
***Major-index ETFs***
***Medium-term Trend*** QQQQ, SPY and IWM firmed at support on Thursday and bounced on Friday. I outlined the reasons for support on Friday. Support zones stem from the Oct-Dec lows and a 50-62% retracement of the Nov-Jan advance. However, this Nov-Jan advance formed rising wedges (gray trendlines). The trend reversed when these ETFs broke the wedge trendlines and the late December lows. With oversold conditions prevailing late last week, some sort of a bounce or consolidation was likely. At this point, I would view strength as a dead-cat bounce that this destined to fail. The 60-minute charts show expected resistance (failure) zones.
***Short-term Trend*** After weakness early Wednesday, QQQQ, SPY and IWM got a modest bounce over the last day and a half. All three broke above the January trendline, pulled back Friday morning and bounced Friday afternoon. Friday's strong close suggests that an oversold bounce is underway. Even so, I expect resistance at or below the 13-Jan highs. Resistance in this area is also confirmed by a 50% retracement of the January decline. The Friday morning lows mark minor support and a break below these levels would argue for further weakness.
***Inter-Market Charts***
***Dollar*** The U.S. Dollar Index ($USD) got a boost on Monday from the financial concerns in the UK and growth concerns in Europe. In addition to early trading this morning, the U.S. Dollar Index is up around 2% since Friday's close. Applying a 2% gain to the US Dollar Index Bullish ETF (UUP) points to an opening around 25.9, which would place the ETF back in the resistance zone. Friday's decline was short-lived as the Dollar's safe-haven status returned on Monday. While I see a potentially bearish flag evolving on the daily chart, the flag is currently rising. I will raise flag support to 25 and a break below this level would signal a medium-term move lower. On the 30-minute chart, UUP gapped down and then firmed immediately after the gap. With a big gap up likely this morning, I will mark short-term support at 25.3.
***Gold*** With the Dollar surging, gold came under pressure on Monday and the futures are pointing to further weakness today. This means that Friday's surge off support will get an immediate test today. On the daily chart, the streetTRACKS Gold ETF (GLD) firmed around 80 and surged above 82 on Friday. This surge off support is quite positive and keeps the medium-term uptrend alive. Notice that GLD has a series of higher highs and higher lows working since late October. Failure to hold Friday's gains and a move back below 80 would be medium-term bearish. On the 30-minute chart, GLD surged into the gap zone on Friday and met resistance at 83. The channel breakout is bullish, but the breakout needs to hold. A move back below 80 would negate this breakout and put the bears back in the driver's seat.
***Oil*** The United States Oil Fund ETF (USO) continues to edge lower on demand worries. These worries stem from global economic weakness that reduces demand for energy products (less shipping, less driving, less air travel). Further weakness in oil bodes ill for the global economy and the stock market. On the daily chart, USO surge above the September trendline, but fell back below 30 this week. While there may be some support around 28-30 from the late December lows, a short-term reversal and breakout are needed to reverse the two week slide. On the 30-minute chart, USO declined sharply and then drifted lower the last six days. It is nothing but lower lows and lower highs, which denote a clear short-term downtrend. I will lower resistance to 31.5 and require a break above this level to reverse this slide.
***Bonds*** Bonds were weak on Friday and the futures are pointing to a sharply lower open this morning. The iShares 20+Yr T-Bond ETF (TLT) is expected to open around 1% lower, which would place it around 113.15. It looks like another leg lower is underway and I am targeting a move to around 104-105. This area marks a 62% retracement of the Nov-Dec advance. On the 30-minute chart, TLT broke flag support with a gap down and closed below support. Bonds bounced after the gap down, but weakened as stocks strengthened in the afternoon. The afternoon high should now be watched for an upside breakout that would negate my bearish scenario. While the charts point to further weakness, a decline in stocks could facilitate safe-haven buying in bonds.
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.
