***Executive Summary***

• Stock Market Stance Remains Neutral
• IWM and SPY Hold Support Breaks
• QQQQ Tests Support
• UUP Stalls After Gap
• GLD Becomes Overbought
• USO Becomes More Oversold
• TLT Hits Medium-term Resistance
• ETF and Stock Setups Video by 8AM (video link)

***Stock Market Stance*** Neutral on 29-January. The short-term trends are down for QQQQ, SPY and IWM, but all three are short-term oversold after sharp declines the last six trading days. In addition, QQQQ is trading near medium-term support and actually firming. With another round of bailout announcements in the offing, stocks could find a bid for an oversold bounce. As noted in detail below, the bulk of the medium-term evidence remains bearish and I would expect a bounce to fail sooner rather than later. It all depends on volume and breadth. Only a surge on expanding volume and positive breadth extreme would change my thinking.

The bulk of the medium-term evidence favors the bears. First, there were double negative breadth extremes on 14-Jan, 20-Jan, 10-Feb and 17-Feb. A double negative breadth extreme occurs when both AD Net% and AD Volume Net% exceed –90% for the S&P 1500 ETF (ISI). Second, seven of nine sectors were down more than 3% the last two Tuesdays. Third, volume expanded on the downside for the second Tuesday in a row. Broad selling pressure on expanding volume is not bullish. Fourth, IWM and SPY broke triangle support on 17-Feb.

Market moving events for the next few trading days:

• Thursday: Jobless Claims, Producer Price Index (PPI), Leading Indicators
  -Earnings: GM, Hormel, MGM Mirage, Sprint, Tesoro
• Friday: Consumer Price Index (CPI)
  -Earnings: Barrick, JC Penney, Lowe's, Tim Hortons
• Monday: No economic reports.
  -Earnings: Looksmart, Nordstrom, ONEOK, The9 Ltd
• Tuesday: Home Price Index, Consumer Confidence
  -Earnings: Macy's, Target, Dycom, Papa John's
• Wednesday: Crude Inventories, Existing Home Sales
  -Earnings: Garmin, Saks, Zale, Famous Dave's, True Religion

***Major-index ETFs***

***Medium-term Trend*** SPY and IWM broke triangle supports with gaps down. These breaks signal a continuation lower and the November lows mark the next test. Key resistance is based on the late January and early February highs. The only potentially bullish point is that 2-period RSI moved below 10 to become short-term oversold. This means we could see a period of flat trading or even another bailout-inspired bounce. Such oversold bounces would be expected to fail somewhere in the gap zone. At this point, I expect a move below the November lows. In addition, I do not expect a tradable low until there is a selling climax or washout. QQQQ continues to hold up better than IWM and SPY, but QQQQ is unlikely to buck the broader market. If SPY and IWM break their November lows, then I would expect QQQQ to test the Nov-Dec lows. QQQQ is currently stalling near support from the December trendline and Dec-Feb lows.

***Short-term Trend*** The gaps are holding and the short-term trends are down for QQQQ, SPY and IWM. QQQQ managed to firm after the gap and still shows relative strength. IWM and SPY sank further after the gap and show relative weakness. All three are oversold and ripe for a consolidation or a bounce. Also notice that QQQQ may have support from the lows on 30-Jan and 2-Feb. In contrast, IWM and SPY clearly broke below these lows. Tuesday's gaps and broken support levels turn into resistance zones. We could see an oversold bounce into these zones. As always, I want to see volume and breadth before taking any bounce seriously. At this point, a bounce into these resistance zones would be expected to fail between minor resistance (thin red line) and key resistance (thick red line).

***Inter-Market Charts***

***Dollar*** There were a couple of interesting headlines in Bloomberg today:

Japan's Surging Credit-Default Swaps Signal Yen Set to Lose Haven Status: The rising cost to protect buyers of Japan’s sovereign bonds against default signals the yen may start to lose its status as a “haven” currency, said Barclays Capital, the world’s third-largest foreign-exchange trader.

Euro Strengthens on Speculation Germany May Act to Counter Regional Crisis: The euro rose from near a three-month low against the dollar on speculation German Chancellor Angela Merkel will signal Europe’s largest economy plans to take action to help ease the financial turmoil in the region.

The news out of Japan is bearish for the Japanese Yen Trust ETF (FXY) and bullish for the Dollar. The news out of Europe is bullish for the Euro and bearish for the Dollar. There is also a big difference between these two bits of news. Market forces suggest problems ahead for the Yen. Government action to aid Eastern Europe could lift the Euro. Hmm, think I prefer the news based on market forces. Government action, especially out of Europe, could take a long time to actually happen.

The US Dollar Index Bullish ETF (UUP) gapped up on Tuesday and held its gains on Wednesday. The overall trend remains up and my target is the resistance zone around 27-27.3. Key support remains at 25.3 on the daily chart. Broken resistance around 26 also turns into support and a move below 25.8 would negate the triangle breakout. The Euro Trust ETF (FXE) is testing the Oct-Nov lows. With these lows at hand and FXE short-term oversold, we could see an oversold bounce back towards 127-128. With the bigger trend down, I would consider this just an oversold bounce. It would take a break above key resistance at 131 to reverse the two month downtrend. The Japanese Yen Trust ETF (FXY) remains range bound with support around 105 and resistance around 115. With the Dollar's surge the last three days, FXY fell sharply and is now testing support. A break below 105 would signal a trend reversal for FXY and the Yen could then loose its status as a safe-haven currency. There is already some evidence of this as the Yen fell relative to the Dollar over the last few weeks.

***Gold*** No change. Gold remains in a strong uptrend, but is short-term overbought and ripe for a pullback or consolidation. The upper channel trendline is within spitting distance, as is 100, which is $1000 for gold. Even though GLD is overbought, it looks like gold will need to take out $1000 before we will see a pullback or consolidation. On the 30-minute chart, broken resistance around 90.5-91.5 turns into a support zone. A pullback to this area may offer a second chance to partake in the uptrend. For now, I will leave key short-term support at 87.

***Oil*** No change. Just when you thought oil could not go any lower, it does. The United States Oil Fund ETF (USO) gapped down and stayed down on Tuesday. This is hardly surprising given the sharp decline in stocks and sharp rally in the Dollar. Perhaps this is an exhaustion gap, perhaps not. Filling the gap is the first step towards creating an exhaustion gap. I am lowering medium-term resistance to 35. There is also a lot of resistance around 28-30 from broken support. The first oversold surge is likely to meet resistance in the 28-30 area. On the 30-minute chart, USO is short-term oversold after a 20% decline in 5-6 days. The pennant consolidation now becomes resistance and I am setting key resistance at 27. The most I expect is an oversold bounce at this point. In addition, I would let the first bounce go and only consider bottom picking after a pullback.

***Bonds*** Bonds could turn their focus on two key inflation gauges over the next two days. The Producer Price Index (PPI) will be reported this morning at 8:30AM and the Consumer Price Index (CPI) is on deck for Friday morning. Both are expected to show declines year-on-year and this points to deflation, not inflation. Deflation is bullish for bonds. Despite the deflationary outlook, the iShares 20+Yr T-Bond ETF (TLT) remains in a clear downtrend in 2009. Hmm, that is not quite right. The ETF got a nice bounce off support on Tuesday, but formed a black candlestick on Wednesday. Despite more deflation than inflation, I am concerned with the lack of follow through in TLT. A break above 107 would provide follow through and reverse the downtrend. As long as resistance holds, we could be setting up for a failure at this level. I sometimes look at the 10-Year Note Yield ($TNX) for an inverse perspective. TNX surged to 30 (3%) and then pulled back with a rising wedge that retraced 50%. A piercing pattern formed over the last two days and a wedge breakout would be bullish for rates (bearish for bonds). On the 30-minute chart, TLT forged an island reversal on Tuesday and then declined on Wednesday. Also notice that the ETF surged last week and gave most of its back with Friday's decline. Sellers are sure quick on the trigger. Can't says I blame them when you look at the parade of bailouts and financing needs ahead for the US Treasury.

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.