***Executive Summary***

• Stock Market Stance Remains Neutral
• Five Stages of Grief - Redefined
• Breadth is Mixed on Big Advance
• Volume Is Uninspiring
• Late Sell-Off Shows Weak Hands
• SPY Remains Below November Low
• UUP Remains in Uptrend as ECB Meets
• GLD Remains Oversold At Support
• USO Surges to Resistance Zone
• TLT Breaks Flag Support
• ETF and Stock Setups Video at 8AM (video link)

***Stock Market Stance*** Neutral on 29-January. No change. The bulk of the medium-term evidence remains bearish, but stocks are very oversold and ripe for a consolidation or a bounce. In addition, the level of negativity remains high with stock market weakness featuring on the front pages of the NY Times, Washington Post and other newspapers. I am not calling for an end to the bear market, but we may be entering a period of flat trading – both short-term and long-term. Short-term resistance zones are marked on the 30-minute chart and this is the first area to expect a bounce to end.

Market moving events for the next few trading days:

• Thursday: Factory Orders, Jobless Claims
  -Earnings: K-Swiss, MGM Mirage, Six Flags, Urban Outfitters
• Friday: Employment Report
  -Earnings: HR Block, Tasty Baking
• Monday: No economic reports.
  -Earnings: Schawk, Force Protection, Bronco Drilling
• Tuesday: No economic reports.
  -Earnings: Dick's Sporting, Stage Stores, Boston Beer
• Wednesday: Bernanke Speaks, Crude Inventories
  -Earnings: Bon-Ton, Staples, Hot Topic, Jo-Ann Stores

***Technical Highlights***

***Five Stages of Grief*** Thanks to feedback from a subscriber, I need to clarify the five stages of grief. Yesterday, I inadvertently referred to the five stages of death. Here is the opening paragraph from wikipedia.org:

The Kübler-Ross model first introduced by Elisabeth Kübler-Ross in her 1969 book "On Death and Dying", describes, in five discrete stages, a process by which people allegedly deal with grief and tragedy, especially when diagnosed with a terminal illness or catastrophic loss. The stages are known as the Five Stages of Grief.

***Mixed Breadth*** Yesterday's advance was big on price gain, but breadth for the S&P 1500 ETF (ISI) was mixed. AD Net% surged to +70%. While respectable, this reading is well below the +90% required for a positive breadth extreme. A +70% reading indicates that 15% of all stocks were down (AD Net% = %Advances less %Declines, 85% - 15% = +70%). AD Volume Net% was down right unimpressive at +28%. Blame it on financials. GE, BAC, WFC and JPM were all down on big volume. GE declined with volume in excess of 750 million shares. Mixed breadth suggests that this is an oversold bounce that will not have legs.

***Volume Uninspiring*** Volume was above average on the Nasdaq and NYSE. Volume was above average for SPY, but below average for IWM and QQQQ. Even though Nasdaq and NYSE volume was above average, Wednesday's volume was below last week's high and below Tuesday's level. The market needs to advance on bigger volume with a positive breadth extreme to put in a tradable low. Also notice on the charts, that the Nasdaq and NY Composite both remain within falling channels and have to even break their upper trendlines.

**Late Sell Off*** Wednesday surge was looking quite impressive going into the final hour, but a sell-off in the final 30 minutes cut the gains significantly. Late sell-offs show weak hands. On the 10-minute chart, the S&P 500 broke above resistance at 713 with an afternoon surge and extended above 724. The late sell-off knocked the index back to 712. Broken resistance around 710-713 turns into a support zone. In addition, there is support from the low at 705. Failure to hold the 705 area would be quite negative.

***Major-index ETFs***

***Medium-term Trend*** The major-index ETFs firmed yesterday with indecisive candlesticks. IWM and SPY formed doji or small spinning tops. These have small bodies (open-close) and relatively equal upper/lower shadows (high/low range). Even though the ETF moved during the day, there was little change from open to close. QQQQ formed a small white candlestick with a modest upper shadow that marks the intraday high. Basically, all three sold off in the final hour and gave up a portion of their gains. Firmness is the first step to a bounce, but any strength would be considered an oversold bounce within a bigger downtrend. The red rectangles mark the first resistance zones to watch. These stem from the late February consolidations.

***Short-term Trend*** No change. QQQQ, SPY and IWM are in short-term downtrends on the 60-minute charts. After 7-12% declines, the short-term downtrend is getting long in tooth. This increases the chances of an oversold bounce or a consolidation. Broken supports turn into the first resistance zones to watch (red rectangles). A move back to broken supports would be considered a mere oversold bounce. I would expect a reaction high to form around these resistance zones. Key resistance remains at last week's highs and will likely be lowered in the coming days.

***Inter-Market Charts***

***Dollar*** The European Central Bank (ECB) meets today and is expected to cut its key rate at 1/2 percent (from 2% to 1.5%). This rate cut is already priced into the Euro. As with the Fed, currency traders will be parsing the ECB statement for signs of further rate cuts, which are quite likely considering Europe's dire economic situation. The Bank of England also meets today and is expected to cut its key rate from 1% to .5%. In contrast to the ECB, analyst expect the Bank of England to signal an end to rate cuts. After all, they cannot go much lower than .5%. Today's policy announcements will likely increase volatility in the currency markets so grab your hats. Other that that, there is no change in the analysis. The US Dollar Index Bullish ETF (UUP) continues to advance at the expense of the Euro and Yen. There are plenty of reason to be bearish on the Dollar, but perhaps more reasons to be bearish the Euro and the Yen. Only a break below the lower trendline and the late February low would warrant a reassessment. The Euro Trust ETF (FXE) is testing support from its Oct-Nov lows. The ETF attempted a reversal on 20-Feb with a long white candlestick, but there was NO follow through. With a pullback on Friday, FXE reinforced resistance at 129 and the trend is down as long as this level holds.

***Gold*** The SPDR Gold ETF (GLD) moved further into its support zone on the daily chart. The decline appears to be slowing because the last two black candlesticks were quite small. With the medium-term trend up, I remain on guard for a short-term reversal that would signal a continuation of this uptrend. RSI(2) remains oversold for the sixth straight day. This extended oversold period also increases the odds for a short-term reversal. On the 30-minute chart, the decline over the last eight days looks like a falling wedge with resistance now at 91. A move above this level would break the wedge's fall and call for a continuation higher.

***Oil*** Oil surged after the Energy department reported an unexpected fall in crude inventories on Wednesday. Despite this fall, crude inventories remain near 16-year highs and demand continues to wane. The decline in supply is likely due to efforts by OPEC to cut production. Supply is only one half of the equation. A sustained rally in oil requires an increase in demand and that requires an economic upturn. Look for a sustained advance in the stock market to foreshadow economic strength. For now, I think the advances over the last two weeks are mostly short-covering. On the price chart, the United States Oil Fund ETF (USO) surged over 8% on the day. It is a big move, but still within a bigger downtrend and USO is already nearing resistance around 28-30. At best, I would expect a trading range to unfold over the coming weeks or months.

***Bonds*** Bonds remain weak overall, but weakness in the stock market could spur buying in bonds. I would not expect a breakout at 107, but there could be a bounce back into the middle of the trading range. The medium-term trend remains down for the iShares 20+Yr T-Bond ETF (TLT). Even though the ETF is finding support from the February lows, there is absolutely no sign of strength that would suggest an impending breakout. In addition, bonds have not been able to rally in the face of serious stock market weakness this year. Investors see little safety in US bonds because of the upcoming financing needs of the US government. On the 30-minute chart, TLT firmed at support and formed a rising flag. The ETF broke flag support with a move below 101.5 yesterday and this calls for a continuation lower.

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.