***Executive Summary***

• Stock Market Stance Remains Neutral
• Upside Breadth Unimpressive
• Upside Volume Remains Weak
• SPY Bounces off Triangle Trendline
• QQQQ Forms Rising Flag
• UUP Declines From Resistance
• GLD Churns Near Medium-term Resistance
• USO Continues to Firm Near Support
• TLT Extends Decline as Supply Looms (video link)

***Stock Market Stance*** Neutral on 29-January. The major-index ETFs remain within large triangle formations and trading ranges over the last 3-4 months. There are swings within these triangles, but the medium-term trends are flat at best. Outside the trend, the bulk of the evidence remains bearish for the medium-term. Negative breadth extremes on 14 and 20 January have yet to be countered with positive breadth extremes. Positive breadth was not inspiring the last two days. In addition, upside volume has been weak and buyers remain hesitant. The VIX (fear factor) is back on the rise and this is traditionally negative for stocks. Perhaps most importantly, we are still in a primary bear market and any advance from here would still be deemed a countertrend rally. Despite these negatives, the market simply refuses to buckle as investors salivate over TARP, the Bad Bank idea and the stimulus package. The very fact that we need these things is testament to the fragility of the economy – and the long road to recovery. In any case, progress on bank rescues and the stimulus package could keep buyers interested and bears frustrated as the market simply churns. This will make it difficult for both bulls and bears to make money.

Market moving events for the next few trading days:

• 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
• Monday: No economic reports.
  -Earnings: Beazer, Whirlpool, Sohu, Vodafone
• Tuesday: Wholesale Inventories
  -Earnings: Elan, MolsonCoors, NVIDIA, Web.com

***Technical Highlights***

***Breadth Remains Weak*** The stock market looked pretty strong from the outside. The major-index ETFs all sported modest gains. Eight of the nine sectors were up with seven advancing over 1.5%. The Financials SPDR (XLF) was the notable laggard. Despite looking strong overall, breadth stats were truly uninspiring for the S&P 1500 ETF (ISI). AD Net% finished at +30% and AD Volume Net% ended at +21%. There were also more new 52-week lows than new 52-week highs. Compared to last week's selling pressure, the buying pressure over the last 1-2 days has been quite weak. This suggests that the bounce is a corrective move that will fail sooner rather than later.

***Low Volume*** The NY Composite advanced 1.97% and the Nasdaq was up 1.46%. Despite these respectable mid week gains, volume was below average for the NYSE and average for the Nasdaq. Volume levels were also well below average for QQQQ, SPY, IWM and DIA. This is no way to start a rally. Volume is important to the upside because it represents fuel (buying power). Without strong buying, advances are likely to run out of steam.

***Major-index ETFs***

***Medium-term Trend*** With indecisive candlesticks forming on Tuesday, there is no change in the medium-term analysis. QQQQ, SPY and IWM have gone nowhere since 10-October. Since early December, the major-index ETFs have been range bound with 12-20% trading ranges. The blue trendlines show a triangle type consolidation taking shape. After a new low in November, the recovery and triangle consolidations alleviated oversold conditions. Now what? Technically, a triangle breakout is required for the next directional clue. However, buying on resistance breaks and selling on support breaks does not offer a good risk-reward ratio. In fact, trading remains so choppy that buying and selling in such a manner simply increases the chances of whipsaw. Strong trends are required to buy resistance breaks and sell support breaks. As such, I am focused on the 60-minute charts to catch the swings within the triangle. This requires extra trading and focus, but it is the best way to control risk at this point. The alternative is simply to stay on the sidelines until the dust settles.

***Short-term Trend*** On the 60-minute charts, QQQQ, SPY and IWM formed rising flags over the last two days. IWM and SPY retraced 38-50% of the prior decline, while QQQQ retraced 62%. The larger retracement signals that QQQQ is showing relative strength. QQQQ was also the only one to hit the top of its resistance zone. IWM hit the bottom of its resistance zone, while SPY fell short of its resistance zone. The rising flags are typical for corrective rallies. However, the bulls have a short-term edge as long as the flags rise. With resistance levels close at hand, I expect reversals sooner rather than later. The thin green lines mark flag support. A break below these levels would reverse the two day advance and signal a continuation of the prior decline.

***Inter-Market Charts***

***Dollar*** The US Dollar Index Bullish ETF (UUP) struggled at resistance on Monday and fell rather sharply on Tuesday. This is the second decline from resistance. The medium-term trend (daily chart) remains up as long as UUP holds triangle support and the late January lows. A break below 25.3 would fully reverse this uptrend and project further weakness towards the December lows. Trading could be tricky within the triangle because the bigger trend is still up. This triangle could be just a consolidation or rest before another move higher. On the 30-minute chart, the first signs of weakness appeared as UUP broke below support at 25.7. This is the early signal to anticipate a top. A recovery above 26.1 would break triangle resistance and signal a resumption of the uptrend. The Euro Trust ETF (FXE) found support at the January low and surged on Tuesday. This is a start, but follow through above 133 is needed to fully reverse the downtrend. The European Central Bank (ECB) remains hawkish and may not cut rates again until March. This could put a bid into the Euro and FXE may firm the next few weeks.

***Gold*** The streetTRACKS Gold ETF (GLD) turned indecisive at resistance over the last two days. A shooting star formed with a spike above 92.5 on Monday. GLD weakened further with a small decline on Tuesday. This short-term volatility is not enough to affect the medium-term uptrend. I am still marking medium-term support in the low 80s. With the medium-term trend firmly up, short-term weakness is considered corrective. I would expect a low at or just above the October trendline. On the 30-minute chart, GLD corrected over the last two days with a falling flag again. The flag is nearing the support zone and traders should be on guard for another reversal. A break above 89 would break flag resistance and put the short-term bulls back on track.

***Oil*** The United States Oil Fund ETF (USO) opened weak, but recovered to firm a small white candlestick at support. While the double bottom remains a possibility, the overall downtrend remains a reality. USO never recovered from the gap down on 27-Jan and drifted lower the last five days. Even though the decline is slowing, it is still a decline as selling pressure outpaces buying pressure. On the 30-minute chart, the triangle support break from 2-Feb remains in play. I am marking short-term resistance at 30. A break above this level is needed to negate the triangle support break and anticipate a double bottom on the daily chart. I would also look for a little help from the stock market (up) and the Dollar (down) before taking a bounce in oil seriously.

***Bonds*** Bonds cannot hold a bid to save their life. After a bounce on Monday, TLT opened weak and declined rather sharply on Tuesday. The channel continues to fall on the daily chart and TLT exceeded its 62% retracement mark. Key resistance remains at 110 and it would take a move above this level to reverse the medium-term downtrend. On the 30-minute chart, TLT forged a lower low on Tuesday to reassert the short-term downtrend. I can now mark short-term resistance at 106. A move above this level would break the 15-Jan trendline and forge a higher high. Until this happens, the bears rule bonds. The recent decline in bonds could be in anticipation of Wednesday's funding announcement for 10-year and 30-year Treasuries. With TARP and other programs included in this funding, the supply set to hit the market is going to be huge. We have not even gotten to the stimulus funding yet. There will be plenty of supply overhanging the market for the next few quarters.

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.