***Executive Summary***

• Stock Market Stance Remains Neutral
• QQQQ Forms Doji
• IWM and SPY Extend Inside Days
• UUP Benefits from Weak Yen
• GLD Extends Correction
• USO Surges to Firsts Resistance
• TLT Fails at Resistance (video link)

***Stock Market Stance*** Neutral on 29-January. After sharp declines on Monday, the major-index ETFs recovered on Tuesday and stalled on Wednesday. This choppy trading is occurring after stocks became quite oversold on Monday. Some sort of oversold bounce is underway and it could extend another day or two. I marked resistance zones on the 60-minute charts. A low-volume weak-breadth rally into these zones could provide another chance for short positions. At this point, any strength is considered an oversold bounce within a bigger downtrend. This means I expect the bounce to fail sooner rather than later.

Medium-term Recap: The bulk of the medium-term evidence still favors the bears. First, the S&P 1500 forged 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%. Second, volume on up days has not been impressive. Third, the decline started in early January and we have yet to see a high volume capitulation or selling climax. Most bottoms form after some sort of capitulation or selling climax. Fourth, the Put/Call Ratios have yet to reach extremes that signal a medium-term bottom.

Market moving events for the next few trading days:

• 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
• Wednesday: Durable Goods, Crude Inventories, New Home Sales
  -Earnings: Costco, Big Lots, Toll Bros, PetsMart

***Major-index ETFs***

***Medium-term Trend*** QQQQ, SPY and IWM stalled on Wednesday to form their second inside day. After long black candlesticks on Monday, the major-index ETFs recovered with smaller white candlesticks on Tuesday. QQQQ and SPY then formed doji on Wednesday and closed inside the range of the last two days. IWM formed a small black candlestick, but also closed within the range of the last two days. Looking back, I identified two prior periods with multiple inside days (gray circles). Both of these formed after long black candlesticks and the market moved higher in subsequent days. Despite further strength, the advance was choppy and unprofitable. Current inside days show indecision that can also foreshadow a bullish reversal. Even with a short-term breakout, I would view this as a bounce within a bigger downtrend (channel). This means I would expect resistance at or below last week's gaps. See the 60-minute charts for details.

***Short-term Trend*** QQQQ and SPY have two patterns at work on the 60-minute chart. First, an inverse head-and-shoulders is taking shape with neckline resistance at yesterday's high. Follow through above these resistance levels would argue for further strength towards resistance from the gaps and broken support zones. The right half of the head-and-shoulders looks like a rising wedge or flag. These are potentially bearish. The major-index ETFs became oversold after the prior decline (10-Feb to 23-Feb). Rising flags and wedges are counter-trend rallies that relieve oversold conditions. The bulls have an edge as long as they rise. Trendline breaks would be negative, while a break below yesterday's low would reverse the two day advance. Aggressive traders may consider anticipating a bearish reversal if QQQQ and SPY advance towards their gap zones (gray rectangles).

IWM showed relative weakness on Wednesday. While SPY and QQQQ edged higher, IWM traded flat and did not exceed yesterday's high. With a consolidation forming the last two days, traders should watch the boundaries for a signal. A break above 41.5 would argue for an oversold bounce towards broken support and the gap zone. A support break at 39.4 would signal a continuation lower.

***Inter-Market Charts***

***Dollar*** When looking at currencies, we must compare apples to apples. This means the Dollar is viewed relative to the other major currencies: Euro, Yen, Aussie, Swissy, Canadian Dollar (CAD) and Pound. While the problems in the US are plenty, they could be even worse elsewhere, especially export dependent Japan. Recent reports show that Japanese exports fell 35% in December and 42% in January. German exports declined over 7% in the fourth quarter and the economy contracted the most in 22 years. Germany is Europe's biggest, and most robust, economy. It is clear that this is both a financial crisis and an economic crisis. The US Dollar Index Bullish ETF (UUP) continued to benefit from weakness in the Yen and Euro. UUP remains within a rising wedge with first support at 25.8. The bulls are in excellent shape as long as this level holds. The Euro Trust ETF (FXE) forged an intraday reversal last Friday, but did not follow through. At the very least, a break above resistance at 129 is needed for a trend reversal. The Japanese Yen Trust ETF (FXY) broke double top support two days ago and the downside target is around 95. However, the ETF is short-term oversold and there could be an oversold bounce or consolidation. Broken support around 105 turns into the first resistance area.

***Gold*** No change. The SPDR Gold ETF (GLD) pulled back sharply over the last two days. After a surge above 98, 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 big lift over the last two days. After becoming oversold with a gap down last week, the ETF surged over 10% to fill the gap this week. The first resistance zone around 26-26.5 is coming into play on the 30-minute chart. On the daily chart, broken support marks the second resistance zone around 28-30. Oil surged higher after the energy department reported a decrease in gasoline supplies. The combination of oversold conditions and bullish news may have sparked short covering. At this point, I do not consider this more than just an oversold bounce. While oil surged, the Energy SPDR (XLE) and Oil Service HOLDRS (OIH) actually closed lower on Wednesday. This suggests that the surge in oil could be short lived.

***Bonds*** Fundamentally, there is clearly downside pressure on bonds. The bailouts and stimulus plans need to be financed and this will create new supply in the coming quarters. On the demand side, the corporate bond market is improving and this creates more competition to treasuries. Japan moved from a budget surplus to a budget deficit. Foreign governments and companies buy treasures to keep their cash in safe place. With budget surpluses disappearing and corporate profits under pressure, there will be less free cash available for US treasuries. It all adds up to downward pressure on the US Treasury Bonds. There is sometimes a lag between the fundamentals and the technicals, but the iShares 20+Yr T-Bond ETF (TLT) is looking ripe for further weakness. TLT failed to hold the channel break and declined from key resistance over the last two days. The trading range over the last two weeks looks like a consolidation within downtrend. A continuation of this downtrend would project further weakness towards the 95-97 area. One caveat still applies: a sharp decline in stocks could provide a safe-haven lift for bonds.

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.