***Executive Summary***

• Stock Market Stance Remains Bearish
• Expectations Running High
• 10-minute Swing Is Up
• SPY Remains Below Support Break
• QQQQ Challenges Short-term Resistance
• UUP Tests Medium-term Support
• GLD Stalls at Resistance
• USO Fails to Hold Breakout
• TLT Bounces off Retracement Support
• No Commentary on Friday (video link)

***Friday Operation*** I have a hernia operation scheduled for Friday and will not be able to publish a commentary/video. It is a fairly common procedure and I should be released from hospital the same day. Barring any unforeseen consequences, the normal commentaries and videos will resume on Monday.

***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 five days. Volatility and choppy trading are the orders of the day, week and month. With earnings in full swing and the Fed policy statement today, 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:

• 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
• Tuesday: Auto-Truck Sales, Pending Home Sales
  -Earnings: Avon, Cummins, DR Horton, Tyco, UPS

***Technical Highlights***

***Itching to Pop*** This market looks like it is just itching to pop. The bad news continued to flow for earnings and guidance, but the market refused to go down as the major-index ETFs ended the day with modest gains. Perhaps the bulls are looking ahead to the FOMC statement or the stimulus package. There is certainly a lot of money on the sidelines. The Fed's policy statement is due at 2:15 this afternoon and it looks like the house will pass the stimulus package soon. While I do not think the Fed and the stimulus package will end the primary bear market, they could fuel the bulls over the next few days or even weeks. In any case, I am still focused on the short-term swings because the medium-term picture remains muddled. The chart below shows SPY with 10 minute bars. SPY surge on the open, pulled back and then edged above 85 for a breakout. The short-term swing is up at this stage and I am marking swing support at 84.

***Major-index ETFs***

***Medium-term Trend*** There is no real change in the medium-term analysis as the major-index ETFs closed just below resistance on Tuesday. As the charts now stand, the medium-term trends 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 situation remains tricky. We have a short-term downtrend over the last three weeks, but an upswing over the last three days. Will this upswing result in a breakout and short-term trend reversal? QQQQ, SPY and IWM are all quite close to short-term resistance. It would not take much to produce a breakout. While the short-term trend is important, I still think the swings are the only way to play. The blue trendlines mark three swings over the last eight days. The current swing is up and the futures are pointing to a strong open this morning (+2%), which suggests a breakout on the open. As such, I will base upswing support on the afternoon lows. The gap and these lows must hold. A break below the Tuesday afternoon lows would reverse the current upswing.

***Inter-Market Charts***

***Dollar*** The Dollar remained under pressure on Tuesday as focus turns to the Fed, the US economy, the bailout package and the stimulus bill. The bailout and the stimulus are needed to rescue the financial system and the economy. Efforts to shore up the banking system could increase confidence in the markets and drive money towards other currencies. With the Dollar seen as a safe-haven currency, this means flows out of the Dollar and into riskier currencies (assets). On the daily chart, the US Dollar Index Bullish ETF (UUP) declined sharply on Monday and remained under pressure on Tuesday. A break below support at 25.3 would reverse the 6-7 week uptrend and call for a continuation of the Nov-Dec decline. While it may not be as drastic, we could see a period of Dollar weakness for the next few weeks. The Euro Trust ETF (FXE) broke the falling wedge trendline on Monday and remained strong on Tuesday. FXE looks poised to break resistance at 133. The Japanese Yen Trust ETF (FXY) is meeting resistance from the December high and a double top could be forming.

***Gold*** What happens to gold if the Dollar weakens? These two have historically enjoyed an inverse relationship. Gold moves up as the Dollar moves down and visa versa. Even though we have seen some anomalies the last two weeks, I think this inverse relationship is largely intact. The streetTRACKS Gold ETF (GLD) is stalling near resistance, but remains in a clear uptrend over the last few months. Right now GLD looks vulnerable to a consolidation or even a pullback. However, I think a decline from here would be a corrective move within a bigger uptrend, not the start of a bigger trend change. On the 30-minute chart, GLD consolidated above 88 the last 2-3 days. GLD is short-term overbought and I am marking support around 83-85. A pullback into this zone may offer a second chance to partake in the uptrend. A break below 83 would call for a reassessment.

***Oil*** The United States Oil Fund ETF (USO) opened weak and closed weak, but remains above support from the Dec-Jan lows. While a double bottom is still possible, yesterday's gap down and weak close show just how nervous the bulls are. The double bottom remains alive as long as USO holds support on the daily chart. On the 30-minute chart, USO gapped down and broke below support from broken resistance. The ETF should have firmed near broken resistance, but selling pressure pushed the ETF lower throughout the day. Even though the first breakout attempt failed, a falling wedge may be taking shape and yesterday's decline could be an overshoot. I am now marking minor resistance at 31 and a break above this level would revive the short-term uptrend.

***Bonds*** The iShares 20+Yr T-Bond ETF (TLT) hit the top of its retracement zone and bounced on Tuesday. While the move was quite sharp, it is still viewed as an oversold bounce within a downtrend (falling wedge). The ETF fell from 116 to 107 in six days and RSI(2) moved below 10. Such oversold conditions prepared the way for Tuesday's bounce. On the 30-minute chart, TLT remains below resistance at 111. I raised resistance to match broken support. After a sharp decline, support breaks often turn into resistance and there are sometimes throwback rallies to broken support. I would like to see TLT recover broken support before considering this more than an oversold bounce.

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.