***Executive Summary***

• Stock Market Stance Remains Neutral
• Breadth and Volume Surge
• The Last Double Bottom Attempt
• QQQQ Reclaims Support Break
• IWM and SPY Form Harami
• UUP Holds Wedge Trendline
• GLD Pulls Back with Sharp Decline
• USO Firms for Fourth Day
• TLT Backs off Resistance (video link)

***Stock Market Stance*** Neutral on 29-January. Stocks surged on turnaround Tuesday with a broad advance on above average volume. Bernanke spoke and the markets jumped, even though he said nothing new. The advance looks impressive based on a single day, but all it did was erase Monday's loss. SPY is essentially trading where it was at Friday's close. As always, follow through is what separates dead-cat bounces from trend changing events. A one day bounce from oversold conditions is not enough to change the medium-term trend. In fact, it was not even enough to reverse the short-term downtrends. At this point, we may see some follow through over the next day or two, but I think the path of least resistance is down over the last few weeks. Resistance levels on the 60-minute charts identify areas to expect a short-term reversal.

Despite yesterdays big advance, the bulk of the medium-term evidence still 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. Fifth, the Put/Call Ratios have yet to reach extremes that signal a medium-term bottom.

Market moving events for the next few trading days:

• Wednesday: Bernanke Speaks, Crude Inventories, Existing Home Sales
  -Earnings: Garmin, Saks, Zale, Famous Dave's, True Religion
• Thursday: Durable Goods, Jobless Claims, New Home Sales
  -Earnings: GM, Rowan, Dell, Kohl's, Gap Inc
• Friday: GDP, Consumer Sentiment, NAPM Chicago
  -Earnings: Aircastle, Interpublic, Mirant, Integra
• Monday: ISM Mfg Index
  -Earnings: Tower Group, Ferro, Kenneth Cole, TiVo
• Tuesday: Pending Home Sales, ISM Index
  -Earnings: Autozone, Chicos, Tech Data, Virgin Mobile

***Technical Highlights***

***Breadth Surges*** The market staged a broad advance with all sectors moving higher on Tuesday. For the S&P 1500 ETF (ISI), AD Net% surged to +87% and AD Volume Net% reached +88%. These are impressive readings, but they fell just short of positive breadth extremes. I require a surge above +90% for a robust show of confidence in the overall stock market. The inability to surge above +90% shows some hesitancy. Not much, but some. In addition, there were still many more new 52-week lows than new 52-week highs on Tuesday. Even though yesterday's breadth surge was impressive, it was just one day and not enough to call for a medium-term bottom.

***Volume Surges*** Volume surged on both the Nasdaq and the NYSE on Tuesday. Nasdaq volume reached 2.4 billion shares for an above average reading. NYSE volume was above average with 1.84 billion shares. A surge with above average volume and impressive breadth is, well, impressive. However, yesterday's volume was not the highest of the month. There is a lot of money on the sidelines and yesterday's volume does not show a true stampede into stocks. The NY Composite remains with a falling channel over the last two weeks, but is getting a bounce off the November low. Follow through above 4900 would break the upper trendline. The Nasdaq found support around 1400, but also remains in a falling channel over the last two weeks. Follow through above 1470 would break the upper trendline.

***The Last Double Bottom Attempt*** The double bottom in SPY is the talk of the town right now. With this in mind, I went back to the last double bottom opportunity in Jan-Mar 2008. This double bottom featured two big reversals (gray ovals) with big volume (blue ovals). After the March reversal, there were two noticeable pullbacks that looked like falling flags (blue trendlines). These flag breakouts provided a second chance to catch the Mar-May advance with less risk. Even though SPY broke above its February highs to "confirm" the double bottom, the rally petered out in May and peaked on 19-May (red arrow). Also notice that the advance from March to May forged a rising wedge, which is a bearish pattern. The key lesson here? Don't chase the first big bounce. Wait for a pullback.

The second chart shows SPY now. Because SPY remains in a bear market, I would treat the current double bottom with a healthy dose of skepticism. The potential double bottom is not the same as March 2008, but SPY is clearly firming at support from the November low. "Firming" is the key word here. SPY has yet to actually bounce and follow through. Volume in November showed a selling climax and surge on above average volume. Volume in February does not show a selling climax. While yesterday's volume was above average, it was not the highest of the month and not indicative of a truly strong surge. Let's see some follow through with bigger volume and a positive breadth extreme before getting too excited here.

***Major-index ETFs***

***Medium-term Trend*** QQQQ, SPY and IWM all formed harami candlestick patterns yesterday. This version features a long black candlestick on Monday and a smaller white candlestick on Tuesday. The white candlestick is inside the range of the black candlestick. It is also an inside day that signals indecision, which can foreshadow a short-term reversal. Remember, all candlestick patterns are short-term with a 1-2 week forecast range. It is also worth noting that all three ETFs are firming in different areas. QQQQ is firming near the January low. SPY is firming near the November low. IMW is firming between the November and January lows. With QQQQ still fighting its January low, the ETF is holding up the best and shows relative strength. Admittedly, QQQQ is a tough call after yesterday's rebound at support. However, I still consider the bulk of the medium-term evidence bearish. The 17-Feb gap is holding, the ETF broke the wedge trendline and the ETF also forged a lower low.

IWM firmed at the lower trendline of the falling channel, as did SPY. At this point, the most I would expect is a short-term oversold bounce. As noted yesterday, QQQQ, SPY and IWM were ripe for an oversold bounce because RSI(2) was oversold for most of the last six days. Until there is follow through on bigger volume and stronger breadth, I will consider this just an oversold bounce that will likely fail at or below last week's gap. 

***Short-term Trend*** The 60-minute charts highlight the current downtrend and the gap resistance zone. QQQQ, SPY and IWM became quite oversold after the sharp two week decline. Therefore, we should allow room for a sizable oversold bounce. The thin red line marks resistance from the February trendline. This is the first area to watch for this oversold bounce to fail. The gray rectangles mark resistance zones from the gap and broken support. This is the second area to watch for a reversal. I am marking key resistance zones based on these gray rectangles.

***Inter-Market Charts***

***Dollar*** The US Dollar Index Bullish ETF (UUP) refuses to breakdown, even with strength in the stock market. The Dollar bulls can thank the Yen bears. First, UUP remains in a clear uptrend with the rising wedge holding. The thin green line (25.8) marks wedge support and support from broken resistance. UUP remains strong as long as this first support level holds. A move below 25.8 would be negative and further weakness below the February low (25.4) would fully reverse the uptrend. The Euro Trust ETF (FXE) bounced as the Dollar declined on Tuesday, but remains short of a breakout. More follow through to last week's intraday reversal is needed to fully reverse the medium-term downtrend. The big story now is the breakdown in the Japanese Yen Trust ETF (FXY). This ETF broke double top support with a sharp move lower on Tuesday. The Yen is clearly loosing its safe-haven status. Pundits are pointing to the dire economic situation in Japan as a reason for the decline. Japan is an export driven economy and the world is moving into a recession.

***Gold*** The SPDR Gold ETF (GLD) pulled back sharply on Tuesday as money moved into stocks. A rise in the stock market provided a shot of confidence that detracted from gold as a safe-haven. In addition, GLD was overbought and ripe for a pullback. The medium-term trend remains firmly bullish with a support zone around 87-92. The 30-minute chart shows potential support at the top of this big support zone. Broken resistance turns into support around 91. It is also possible that the consolidation (11-13 February) provides support around 92-93. A 50-62% retracement of the prior advance (9-20 Feb) would carry to the 92-93 area. Therefore, I would watch GLD closely if it pulls back into the 92-93 area. Separately, the SPDR Gold ETF holds over 1000 tons of gold. This makes it the seventh largest holder of bullion, right behind the Swiss central bank. Come to think of it, this is a self-fulfilling prophecy. Create a gold ETF. Buy gold to stock the ETF. Rising gold and ETF prices spur interest.

***Oil*** The United States Oil Fund ETF (USO) got a little help from the stock market and the Dollar on Tuesday. After a black candlestick on Monday, USO firmed with a smaller white candlestick on Tuesday. Taken together, these two form a harami that could foreshadow a short-term bounce. On the daily chart, broken support around 28-30 turns into a resistance zone for the first upside target. On the 30-minute chart, USO bounced off support at 23 three times over the last three days. The ETF is attempting to forge a higher low that could give way to an oversold bounce. Short-term resistance remains around 26-26.5 and this would be the first place to expect resistance.

***Bonds*** Despite strength in the stock market, the iShares 20+Yr T-Bond ETF (TLT) managed to end the day with a small gain. I am not sure what gives here. The ETF remains in a medium-term downtrend with lots of resistance at 107. TLT surged above 106 intraday, but fell back and closed below 105. This affirms resistance at 107 as the level to beat. On the 30-minute chart, TLT gapped up and then backed off resistance at 107 after the gap. With the medium-term trend down, I expect a failure at this resistance level. A break below the support zone at 102-103 would signal a continuation lower and target a move into the mid-upper 90s. Again, a lot may depend on the stock market. Further strength in stocks would likely weigh on bonds. However, a sharp decline in stocks would likely put a bid in bonds as a safe-haven.

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.