***Executive Summary***

• Stock Market Stance Remains Bearish
• Firming With Bad News
• 10-minute chart Swings
• SPY Remains Below Support Break
• QQQQ Challenges Short-term Resistance
• UUP Declines Sharply From Resistance
• GLD Hits Resistance and Becomes Overbought
• USO Holds Short-term Breakout
• TLT Continues to Fall
• Stock Setups at 7:30AM (video link)

***Stock Market Stance*** No change. Bearish on 15-January. The major-index ETFs have gone nowhere since 10-Oct, which marks four months of flat and choppy trading. After big declines on Tuesday, the stocks firmed and trading has been choppy the last four 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 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:

• 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
• Monday: Construction Spending, ISM Index
  -Earnings: Humana, Mattel, Sandisk, Sysco

***Technical Highlights***

***Refusing to Go Down*** You have to give the bulls credit yesterday. Despite bad news on earnings, lackluster guidance and announced layoffs, the stock market managed to close with small gains. The bears looked like they were in full control after last Tuesday's sharp decline, but the major-index ETFs managed to firm over the last four days. The ability to firm in the face of bad news is positive. Something out there is keeping a bid in stocks. It could be Wednesday's FOMC statement or the prospects of a stimulus package. The FOMC statement will come well before a stimulus package is passed. This means we could see a significant move on Wednesday or Thursday. With volatility high, catching the intraday swings is really the only play I see out there. Frankly, when stock trading gets this choppy, I usually curtail trading significantly and focus on other research projects. The chart below shows 10-minute bars for SPY. There have been seven swings of at least 3% since 15-January (7 days). That's an average of 3% per day, which is very volatile. The Monday afternoon decline turned the swing down with resistance at 84.5. Look for a break above this level to start another upswing and then set support at 83.

***Major-index ETFs***

***Medium-term Trend*** There is no real change in the medium-term analysis as the major-index ETFs closed off their highs and did not break key resistance. As the charts now stand, the medium-term trend remain 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.

There is evidence of firmness at retracement supports, but we have yet to see a convincing breakout to actually reverse the downtrend. QQQQ, SPY and IWM firmed after retracing 50-62% of the Nov-Jan advance. After a long black candlestick on Tuesday, the major-index ETFs stalled the next four days and closed within Tuesday's high-low range each of the last four days. Even though such indecision can foreshadow a trend reversal, this indecision has yet to turn into buying pressure with a breakout. I am waiting for some proof before moving to a bullish trading stance. This requires a convincing breakout with expanding volume and strong breadth.

***Short-term Trend*** The short-term trend is still down overall (3-weeks), but trading has turned extremely choppy over the last seven days. The blue lines show the swings as best as I can identify. With yesterday's surge, the current swing is up and the green lines mark support. A break below these support levels would reverse the current upswing and argue for another test of support from the January lows.

After a strong open on Friday, the major-index ETFs pulled back rather sharply in the afternoon and there is even a shorter downswing in effect over the last few hours (pink line). Check out the 10-minute charts to view this swing. The thin red lines mark key resistance and a break above this level would revive the upswing.

***Inter-Market Charts***

***Dollar*** The short-term tide is turning against the Dollar as focus turns to the Fed and the US economy for the next few days or even weeks. Prior focus was on the problems in the Eurozone and the UK. However, we have seen the focus shirt every few weeks as currencies fall in and out of favor. The US Dollar Index Bullish ETF (UUP) surged to resistance last Tuesday and stalled for four days. Notice the three black candlesticks from Wednesday to Friday. These show a strong open and weak close. Monday's sharp decline and weak close are short-term bearish (see 30-minute chart). Medium-term support is marked at 25.3 on the daily chart. Further weakness below this level would call for a continuation of the Nov-Dec decline. Look for a move above 26 to undo the gap and put the bulls back in play. Accordingly, the Euro Trust ETF (FXE) surged with a break above the wedge trendline. The ETF firmed for three days and this surge is short-term bullish. Follow through above 133 is needed to call for a medium-term breakout.

***Gold*** The streetTRACKS Gold ETF (GLD) is hitting resistance from the Sep-Oct highs and getting short-term overbought. RSI(2) is above 90 and the ETF is up over 11% in the last six days. The medium-term trend is clearly up, but the ETF looks vulnerable to a pullback or consolidation at this stage. Even though the Dollar looks vulnerable to a pullback as well, gold could also pullback from overbought levels. On the 30-minute chart, I am marking a support zone around 83-85. A pullback to this area may offer a second chance to partake in the uptrend. A decline that exceeds 83 would fully erase the Friday-Monday advance and this would call for a reassessment.

***Oil*** The United States Oil Fund ETF (USO) surged during the day, but fell back by the close to finish largely unchanged. Even so, the ETF bounce off support remains in play with resistance around 40 marking the first upside target. On the 30-minute chart, USO broke resistance at 31 on Friday and pulled back after a surge early Monday. The breakout is holding and remains bullish. With broken resistance around 31 turning into support, it would take a move below 30.5 to negate this breakout.

***Bonds*** The iShares 20+Yr T-Bond ETF (TLT) fell further yesterday as bonds await the FOMC policy statement on Wednesday afternoon. There is not much change in the overall analysis. TLT entered a retracement support zone over the last two days. A falling wedge is also taking shape and this could be a bullish setup. However, the wedge is still falling and we have yet to see any signs of a reversal. On the 30-minute chart, TLT sank further after Friday's gap and I am lowering resistance at 110.5. Look for a break above this level to reverse the short-term downtrend. This would be the first step to a reversal on the daily chart. Should stocks rally, I would expect bonds to fall.

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.