***Executive Summary***

• Stock Market Stance Turns Bullish
• Big News Week
• RSI(2) Becomes Overbought
• Retracement Resistance on 60-minute charts
• UUP Falls as Gold Firms
• GLD Holds Gap and Trendline Break
• USO Fails at Resistance Again
• TLT Stalls at Short-term Retracement (video link)

***Stock Market Stance*** Bullish on 13-March. The bulk of the evidence is bullish and points to an extended rally over the next few weeks or even months. There were positive breadth extremes on 10 and 12 March. SPX volume surged over the last three days. The advance over the last three days was broad with the right sectors leading. The VIX and VXN broke below their February lows. Even though I am turning bullish, the major-index ETFs are already short-term overbought and quite ripe for a pullback or consolidation. Chasing the market after the first oversold bounce is dangerous and I will wait for a pullback to improve the risk-reward ratio.

Market moving events for the next few trading days:

• Monday: No economic reports.
  -Earnings: Six Flags, Schawk, 3Com, eDiets
• Tuesday: Housing Starts, Producer Price Index (PPI)
  -Earnings: FactSet, Sirius XM, Adobe, Darden Restaurants
• Wednesday: FOMC Announcement, CPI, Crude Inventories
  -Earnings: General Mills, Nike, Oracle, Herman Miller
• Thursday: Jobless Claims, Leading Indicators
  -Earnings: FedEx, Morgan Stanley, 3Com, Palm Teekay
• Friday: Quadruple Witching
  -Earnings: Kirklands

***Technical Highlights***

***Big Events This Week*** It could be one choppy week. First, we have the Fed meeting starting on Tuesday and ending with a policy statement Wednesday afternoon at 2:15PM. Even though earth-shattering news is unlikely, Fed announcements often produce some wild fluctuations. Further more, the Producer Price Index (PPI) will be reported on Tuesday morning and the Consumer Price Index (CPI) will be reported on Wednesday morning. The Fed policy statement and these inflation reports are a double whammy for the bond market, which loathes inflation. If this were not enough, we also have quadruple witching on Friday. This means that index futures, index options, single stock futures, and stock options all expire. There are not many single stock futures so this is really just a triple witching. However, these three are enough to stir the volatility pot.

***Major-index ETFs***

***Medium-term Trend*** The first moment-of-truth is here. After a big surge last week, QQQQ, SPY and IWM are trading in their first resistance zones. Furthermore, all three are short-term overbought as RSI(2) moved above 90. While last week's surges with positive breadth extremes on Tuesday and Thursday are bullish, buying in resistance zones and with overbought conditions is quite risky. These resistance zones stem from the late February consolidations. While I think last week's surge put in a significant low, the risk of a pullback is quite high right now. A pullback could either retrace a portion of last week's surge (50%) or even result in a test of the March low. Given the strength of last week's surge, I would expect a higher low to firm. Each chart highlights the 1-Dec pullback. After a five day surge, there was a sharp one-day pullback that retraced around 50% of that five day surge.

***Short-term Trend*** The 60-minute charts focus on two retracement areas. Instead of showing the 38%, 50% and 62% retracements, I am just showing the 50% retracements as resistance or support zones. First, the blue dotted lines show resistance from the 50% retracement area. After a decline from 9-Feb to 9-Mar, a 50% retracement would extend to 28.7 for QQQQ, 78 for SPY and 41 for IWM. Notice that QQQQ is already trading near its 50% mark, but IWM and SPY remain below. These 50% retracement marks coincide with the upper part of the resistance zones on the daily charts. Therefore, we should expect resistance sooner rather than later. The pink lines mark a 50% retracement of last week's advance. However, last week's advance may not be complete yet and these lines may change. Should a pullback start, I can then definitive mark the 50% retracements and this would then be the area to expect support on a pullback.

***Inter-Market Charts***

***Dollar*** The US Dollar Index Bullish ETF (UUP) continues to weaken in the face of stock market strength. SPY was up over 10% last week and UUP was down 1.5%. While the decline seems paltry compared to the SPY advance, it is a pretty good move for a currency. The Dollar benefited from the flight-to-safety trade. With Citigroup announcing a surprise profit and many banks returning bailout money, the flight-to-safety trade is losing its allure. Should stocks remain strong, UUP is likely to break support at 25.9. Technically, the trend remains up as long as this level holds. However, a recent resistance break in the Euro ETF (FXE) increases the odds of a support break in UUP. Notice that FXE broke resistance at 129 on Thursday and held above 129 on Friday.

***Gold*** Here's the lead off from a story in the Wall Street Journal:

Dollar and Gold Are Suddenly Inseparable. Gold and the dollar have been rising in tandem as investors seek safety from contracting world economies, teetering banks and governments stimulus plans.

Suddenly? This positive relationship was in place for over two months. The chart above shows both moving higher since mid December. From a contrarian standpoint, the sudden realization from the WSJ suggests that this relationship may be about to end. Perhaps it already started. Gold got a bounce over the last three days and the Dollar fell rather sharply the last three days. Could gold and the Dollar be poised to resume their inverse relationship? On the daily chart, the Gold SPDR (GLD) formed a harami on Tue-Wed and broke trendline resistance with a gap up on Thursday. The ETF stalled on Friday, but held the gap and trendline break. With the medium-term trend still up, this short-term gap and breakout argue for further strength. It is important that the gap and breakout hold. On the 30-minute chart, GLD stalled around 90.5-91.5, which is essentially the breakout zone. A dip back below 90 would negate the breakout and call for a reassessment.

***Oil*** OPEC voted to maintain current supply levels (no cut) and oil is trading sharply low in early trading today. Even after the strongest rally since July, the medium-term downtrend was never in jeopardy because USO stalled at resistance around 28-30. This resistance zone is proving its merit after Wednesday's gap down and today's expected gap. On the 30-minute chart, USO remains in a short-term uptrend, but formed a lower high late last week. With a gap down expected on the open, USO will be in for an immediate support test around 25.8-26 this morning. A break below support would signal a continuation lower and target a test of the February lows 23.

***Bonds*** Bonds stalled on Friday and there is no change in the basic analysis. The surge in stocks is negative for bonds. Even though bonds were not much of a safety net in January-February, they still represent a safer alternatively to stocks. With stocks finding their footing, the propensity to own bonds is even more diminished. I am showing a close-only chart today. On a closing basis, TLT formed lower highs the last few weeks. In addition, the ETF broke below its February lows in early March. There appears to be downward pressure on bonds over the last few weeks. Moreover, the ETF never recovered after the sharp January decline. This consolidation is looking more like a continuation pattern than a reversal pattern. On the 30-minute chart, TLT surged to 104 and retraced 62% of the prior decline. If this bounce is a dead-cat bounce, then I would expect TLT to fail around the 104 level.

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.