***Executive Summary***

• Stock Market Stance Remains Bearish
• Looking for a Catalyst
• QQQQ Forms Third Inside Day
• SPY Forms Triangle Consolidation
• UUP Consolidates at Resistance
• GLD Surges Toward Sep-Oct Highs
• USO Breaks Short-term Resistance
• TLT Forms Doji in Retracement Zone (video link)

***Stock Market Stance*** Bearish on 15-January. The major-index ETFs have gone nowhere since 10-Oct, four months of flat and choppy trading. After big declines on Tuesday, the stocks firmed and trading choppy the last three days. Volatility and choppy trading are the orders of the day, week and month. With earnings in full swing and the Fed meeting this week, we can expect more of the same in the next few days. Volatility aside, the bulk of the evidence remains bearish for stocks. We saw negative breadth extremes on 14 and 20 January. The major-index ETFs broke rising wedge trendlines and exceeded their late December lows. The VIX turned up over as fear increased over the last few weeks. I will wait for a bullish catalyst before changing my trading stance. This means an upside breakout with good volume and strong breadth. Barring such a breakout, I expect lower prices over the next few weeks.

Market moving events for the next few trading days:

• Monday: Existing Home Sales, Leading Indicators
  -Earnings: Caterpillar, Amer Express, SanDisk
• Tuesday: FOMC Meeting Starts, Consumer Confidence
  -Earnings: EMC Corp, Nucor, Verizon, Stryker, Yahoo!
• Wednesday: FOMC Policy Statement, Crude Inventories
  -Earnings: Boeing, Pfizer, Tyco, Citrix, Novellus
• Thursday: Initial Claims, Durable Goods, New Home Sales
  -Earnings: 3M, Colgate, Amazon, Juniper, Sunpower
• Friday: NAPM Chicago, Consumer Sentiment
  -Earnings: Exxon, Chevron, P&G, Arch Coal

***Technical Highlights***

***Looking for a Catalyst*** In addition to earnings season, we have the Fed scheduled to make its policy statement on Wednesday afternoon (2:15). Trading was volatile all last week and the Fed meeting will only increase this volatility. Heightened volatility also increases the chances of false breaks, both up and down. Right now the bulk of the evidence is bearish for stocks. However, there are potentially bullish setups working on the daily charts. While I hate to fall back on the news, there are certain news events that could drive the market this week. First, I expect earnings to exert downward pressure on stocks. Fourth quarter earnings and sales have been abysmal and guidance is just as bad. Second, I do not look for anything positive out of the Fed. The Fed has pretty much used all the monetary weapons at its disposal. This leaves us with fiscal stimulus, which is the third potentially market moving event. In addition, Ghieitner is likely to be confirmed early this week and this means the Treasury can get back to work on the current financial crisis. However, the big one remains the stimulus package. While I do not think passage will end the bear market, passage or hints of passage could spark a big rally on Wall Street. 

***Major-index ETFs***

***Medium-term Trend*** As the charts now stand, the medium-term trend is clearly down. QQQQ, SPY and IWM broke rising wedge support and exceeded their late December lows. These breaks signal a continuation of the larger downtrend. A trend in motion stays in motion. Therefore, I expect further downside until there is evidence to the contrary.

What would it take to forge a bullish reversal? After an advance from late November to early January, the major-index ETFs retraced 50-62% with a 3-week decline. This retracement amount is normal for a pullback. After forming long black candlesticks on Tuesday, QQQQ and SPY traded flat the rest of the week with three inside days. The high-low range from Wednesday to Friday is completely contained within Tuesday's high-low range. These three inside days show indecision that could foreshadow a reversal. For now, the three inside days just show indecision, not actual buying pressure. The bulls must completely erase Tuesday's long black candlestick to earn a reversal. As a result, I lowered my key resistance levels and a break above these levels would reverse the medium-term downtrend. Should a breakout occur on good volume and strong breadth, I would then forecast a move above the early January highs.

***Short-term Trend*** QQQQ and SPY formed triangle consolidations on the 60-minute charts. IWM edged lower with a falling wedge over the last few days. As a result, IWM show relative weakness. QQQQ shows relative strength because is edged above minor resistance on Friday afternoon. Should breakouts occur, QQQQ is likely to lead the way higher. Trading within the triangle is treacherous, to say the least. SPY experienced six 3% swings in the last four days. Traders either need 10-minute charts to catch the swings or wide stops to avoid whipsaws. Buying breakouts and selling support breaks has been a recipe for whipsaw.

***Inter-Market Charts***

***Dollar*** The US Dollar Index Bullish ETF (UUP) stalled for four days as it met resistance near broken support and the 62% retracement level. The overall trend is up and the Dollar certainly shows more strength than weakness. This favors further strength towards the November highs. However, we could be in for some short-term fireworks. With the Fed meeting this week, the Dollar is a tough call for the short-term. On the 30-minute chart, UUP surged on the open and then fell back to Thursday's lows. I am marking upswing support at 25.7 and a break below this level would be negative.

***Gold*** I talked about the inverse relationship between gold and the Dollar last week. Both surged on Tuesday to test this relationship. On Friday, the Dollar started strong and finished weak, while gold started strong and finished strong. Friday is what one would expect. Gold remained strong as the Dollar faltered. While this relationship is interesting, traders need to focus on the individual charts for direction and triggers. On the daily chart, the streetTRACKS Gold ETF (GLD) remains in a clear uptrend and is fast approaching its Sep-Oct highs. While we might expect some resistance from these highs, it is clear that money is finding its way into gold and this is bullish. On a relative basis, gold is one of the strongest assets out there right now. On the 30-minute chart, GLD firmed early last week to establish support around 83-84. This is the area to watch for signs of material weakness. Pullbacks above this level will be deemed minor. A break below 83 would call for a reassessment of the up trends.

***Oil*** After a weak open on Friday morning, the United States Oil Fund ETF (USO) found immediate support and surged to form a long white candlestick. This is the second surge off support in three days. A double bottom remains possible as USO holds the late December low. This pattern would be confirmed with a break above the early January high. I would expect USO to take its lead from the US stock market. Strength in stocks would signal an impending economic bounce and this would signal an increase in energy demand. Without a breakout and bounce in the stock market, USO's bounce off support could fail. On the 30-minute chart, the gap, recovery and breakout are clear. There is also a good trading lesson here. It sometimes pays to wait for the first 30-45 minutes of trading to pass before making a decision. In this case, USO firmed immediately after the gap and moved sharply higher the rest of the day. USO also held above support from the Monday-Thursday lows. This breakout is bullish until proven otherwise. A move back below 30.5 would call for a reassessment.

***Bonds*** The iShares 20+Yr T-Bond ETF (TLT) formed a doji in its retracement support zone on Friday. The trend is down over the last few weeks, but a bullish wedge may be taking shape. TLT became overbought after the surge above 120. A falling wedge that retraces 50-62% of the prior decline is normal for corrective pullback. TLT is now trading in an area to watch for support and a short-term reversal. I will now watch the 30-minute chart for signs of strength. TLT declined over 8% the last six days and became short-term oversold. The ETF is ripe for some sort of bounce or consolidation at this stage. I am marking resistance at 112. A break above this level would reverse the short-term downtrend and bring the bull wedge in play on the daily chart.

Good day and good trading -Arthur Hill

---------------------------------------------------------------
Click here to post a comment, suggestion or question.

Breadth Charts ---------------------------------

---------------------------------------------------------------
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.
--------------------------------------------------------
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).
--------------------------------------------------------
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.