***Executive Summary***

• Stock Market Stance Turns Neutral
• Breadth Fails to Reach Extreme
• Volume Is Uninspiring
• SPY Breaks Medium-term Resistance
• QQQQ Hits Key Retracement
• UUP Bounces off Support
• GLD Pulls Back from Resistance
• USO Hugs Support
• TLT Plunges After Fed Statement
• Stock Setups at 7:30AM (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*** Neutral on 29-January. While Wednesday's surge was impressive, it was not quite impressive enough. Volume was uninspiring. AD Net% and AD Net% did not reach positive breadth extreme to cancel out prior negative breadth extremes. The rally was concentrated in the financial sector and not spread evenly throughout the market. While the ability to advance in the face of bad new is certainly positive, I do not see enough power in the advance right now. Technically, the major-index ETFs broke resistance levels to establish medium-term uptrends. This means I now have upside targets and medium-term support levels. Should the three day surge fail, the medium-term uptrends would reverse again. Despite medium-term uptrends, stocks are already short-term overbought after a big surge the last four days. With choppy conditions, buying in overbought conditions and selling in oversold conditions is a recipe for whipsaw. At the very least, bulls should wait for a pullback before considering long positions. More aggressive traders may see these overbought conditions as an opportunity to go short.

Market moving events for the next few trading days:

• 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
• Wednesday: ISM Services, Crude Inventories
  -Earnings: Kraft, Clorox, Lazard, Novellus, THQ
• Thursday: Initial Claims, Factory Orders
  -Earnings: Bunge, Cigna, JDS Uniphase, Verisign
• Friday: Employment Report!
  -Earnings: Biogen Idec, Hillenbrand, Weyerhaeuser

***Technical Highlights***

***Strong Breadth, But Not Extreme*** Using the S&P 1500 ETF (ISI) as the base index for breadth stats, AD Net% surged to +80% and AD Volume Net% hit +79% on Wednesday. These are strong moves, but both fell short of a positive breadth extreme (>90%). With all sectors up and the major-index ETFs closing near their highs for the day, I would have expected positive breadth extremes. As breadth now stands, the negative breadth extremes from 14 and 20 January have yet to be reversed. In other words, yesterday's breadth was not strong enough to trigger a bullish signal. In addition, new 52-week lows still outpaced new 52-week highs on Wednesday. IBD called Wednesday a follow through day, but I think it fell short.

***Uninspiring Volume*** Volume also fell short. QQQQ and DIA volume levels were below average. SPY and Nasdaq volume levels were just average. NY Composite volume was above average, but below the levels seen last week and well below 2 billion shares. After gapping 2% higher on the open, the major-index ETFs should have closed 4-5% higher with massive volume and positive breadth extremes. They did not and I am not buying into this rally just yet.

***Major-index ETFs***

***Medium-term Trend*** As a matter of reference, the medium-term trends are up. QQQQ, SPY and IWM forged higher highs in early January and held above their November lows in late January. With the surge over the last 3-4 days, all three broke resistance. The magenta trendlines show a rising wedge in progress. The lower trendline marks support, while the upper trendline marks an upside target. The blue trendlines shows the swings within this rising wedge. The surge over the last 3-4 days broke the blue trendlines extending down from early January. With a higher low in late January and rising wedges working, the overall trend is up as long as key support levels hold. The trend would reverse if the major-index ETFs give up the gains of the last three days.

Before getting too bullish, it is worth pointing out that RSI(2) moved above 90 for QQQQ, SPY and IWM. The major-index ETFs are already short-term overbought. In addition, SPY is up almost 9% in four days. This means the odds of a pullback and/or test of the gap are above average in the coming days. The blue ovals show the early December gaps and breakouts. Even though the market moved higher over the next few weeks, it was a very choppy affair. We could be in for more of the same.

***Short-term Trend*** QQQQ, SPY and IWM gapped higher on the open to break short-term resistance levels. With the gaps holding, the short-term trend and current swing remains up. I am largely focusing on the swings with the blue trendlines. While the current swing is up, all three are trading near retracement resistance as the 4 day advance retraced 50-62% of the prior decline. Combined with short-term oversold conditions, this makes the market quite vulnerable to at least a pullback. Broken resistance and the gaps turn into support. A move below swing support would fill the gaps and start a downswing.

***Inter-Market Charts***

***Dollar*** The Dollar opened weak, but rallied after the Fed policy statement. With the Fed running out of options, currency traders focused on the Fed's treasury bond policy. The Fed previously hinted at buying treasury bonds to boost the economy. However, the Federal Open Market Committee voted 9-1 against the purchase of treasury bonds. Obviously the currency and bond markets were looking for a stronger statement regarding the purchase of treasury bonds. This news sent the Dollar higher in another flight to safety. The US Dollar Index Bullish ETF (UUP) held support at 25.3 and the medium-term trend remains up (daily chart). This support level was reinforced with Wednesday's white candlestick. Look for a break below 25.3 to reverse the uptrend. On the 30-minute chart, UUP formed a falling wedge that retraced 62% of the prior advance. The wedge breakout is positive and further strength above 25.7 would be short-term bullish for the greenback.

***Gold*** A safe-haven flight to the Dollar could put downward pressure on Gold for the short-term. In the medium-term term, we may see money shun currencies completely and favor gold. On the daily chart, the streetTRACKS Gold ETF (GLD) is backing off resistance after becoming short-term overbought three days ago. The medium-term uptrend remains firmly intact, but GLD has further room to fall before hitting a short-term support zone. On the 30-minute chart, the decline over the last three days looks like a falling flag. While these are potentially bullish patterns, a break above resistance at 88.5 is needed to reverse the three day fall. Barring an upside breakout, I would expect GLD to work its way towards the support zone around 83-85. GLD may even find support at the top of this range.

***Oil*** Given the surge in the stock market on Wednesday, I would have expected more strength from oil. The inability to rise shows underlying weakness and this double bottom may not hold. The United States Oil Fund ETF (USO) formed a doji as it consolidated on Wednesday. Doji signal indecision that can sometimes foreshadow a bounce. However, the ETF has yet to recover from Tuesday's gap down. It is also possible that a descending triangle is taking shape and a break below support would signal yet another continuation lower. On the 30-minute chart, USO failed to hold the resistance break at 31 and this area turns into resistance once again. Before picking a bottom again, I would look for USO to break above 31. Barring a breakout, the expectation is for a break below support and this would weigh on the energy sector.

***Bonds*** With news of the 9-1 FOMC vote against the purchase of treasury bonds, the iShares 20+Yr T-Bond ETF (TLT) fell sharply on Wednesday afternoon. Despite this plunge, TLT remains in a retracement support zone and with a potentially bullish pattern. The long-term trend for bonds is up, which means the long-term trend for interest rates is down. Perhaps this is why the Fed governors voted against the purchase of treasuries. Rates are already moving lower. With the long-term trend up for TLT, this means the decline over the last six weeks is a correction, not the start of a bigger downtrend. I am more inclined to look for buying opportunities than selling opportunities as TLT trades at retracement support. On the 30-minute chart, TLT hit trendline resistance and plunged Wednesday afternoon. This affirms resistance at 110 and a break above this level would be bullish.

Good day and good trading -Arthur Hill

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

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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.