***Executive Summary***

• Stock Market Stance Turns Bullish
• Big News Week Starts Today
• QQQQ and IWM Form Bearish Engulfings
• Retracement Resistance on 60-minute charts
• UUP Becomes Short-term Oversold
• GLD Holds Gap and Consolidates
• USO Recovers in the Face of Bearish News
• TLT Breaks Descending Triangle Support
• ETF - Stock Setups Video by 8:30AM ET (video link)

***Stock Market Stance*** Bullish on 13-March. No change. 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.

***Formatting Adjustment*** Rather than label the medium-term trend on the daily chart, I will now identify QQQQ, SPY and IWM as bullish, bearish or neutral. This trading stance will jibe with my stock market stance in the opening paragraph. I will also start a system of standardized labels: first resistance (R1), second resistance (R2), first support (S1) and second support (S2). When appropriate, I will also add a first target (T1) and second target (T2). The first support and first resistance zones will usually apply to the short-term, while the second support and second resistance zones will apply to the medium-term.

Market moving events for the next few trading days:

• 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
• Monday: Existing Home Sales
  -Earnings: Tiffany, Walgreen, Sonic, Techtarget

***Technical Highlights***

***Big Events Start Today*** 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*** QQQQ, SPY and IWM surged with big moves on strong breadth last week to put in a tradable low in early March. Even though I think this rally will last a few weeks, or perhaps even months, the major-index ETFs are stalling in their first resistance zones (R1) and vulnerable to a pullback. After becoming short-term overbought on Thursday and forming doji on Friday, IWM and QQQQ opened strong and closed weak to form bearish engulfing patterns on Monday. SPY also formed a black candlestick to affirm the resistance zone. Using the November surge and pullback as a model, I think the major-index ETFs are vulnerable to a pullback that could retrace 50% of the 5-6 day advance. I would look for a continuation higher after such a pullback. The alternative is a flat consolidation and then a resumption of the advance. Should the advance resume, the next target is the second resistance zone (R2).

***Short-term Trend*** The key retracements on the 60-minute charts affirm the first resistance zones (R1) on the daily charts. SPY and QQQQ retraced 50% of the prior decline and then hit resistance on Monday. IWM fell short of the 50% retracement, but hit resistance all the same. The pink lines show the current advance and the projected retracement (50%). The green boxes mark the first support zone (S1). A move into these support zones may offer a second chance to partake in the bigger uptrend. Ideally, a falling flag or wedge would form. However, the market rarely offers us the ideal setup when we are looking for it. The November pullback was a sharp decline that retraced 50% of the prior 5-day advance – in just one day. The only way to play this one-day pullback was to buy around the 50% retracement mark or the first support zone. As the chart stands right now, I still see more risk of a pullback than a resumption of the advance. Therefore, I will hold out for the pullback and take it one day at a time.

***Inter-Market Charts***

***Dollar*** If you have reasons to be bearish the Dollar, then you must have reasons to be bullish the Euro and/or the Yen. We cannot simply be bearish the Dollar. Currency traders must have bullish arguments for one currency AND bearish arguments for the other. The Dollar is in focus this week as the Fed meets and we get two key inflation reports. Once these pass, attention could return to the bigger problems in Europe and Japan. The US Dollar Index Bullish ETF (UUP) is entering its zone of truth (key support). After a sharp decline the last five days, the ETF became short-term oversold as RSI(2) moved below 10 last week. The indicator finished at 10.72 on Monday, which is essentially oversold. At this point, we need to see some sort of bounce to affirm support and signal a continuation of the bigger up trend. On the 30-minute chart, UUP has been zigzagging lower since last week. A channel is taking shape and move above 26.3 would break channel resistance. While the Dollar opened weak and closed strong, the Euro ETF (FXE) opened strong and closed weak. FXE remains above the resistance breakout at 129 and this breakout should be considered bullish as long as it holds. Look for a move back above 129 to call for a reassessment.

***Gold*** After a gap up on Thursday morning, the Gold SPDR (GLD) stalled over the last three days. GLD formed a bullish harami on Tue-Wed and broke trendline resistance with a gap up on Thursday. The ETF stalled on Friday and Monday, but held the gap and trendline break. With the medium-term trend still up, this short-term gap and breakout argue for further strength. But they must hold! On the 30-minute chart, GLD formed a flat consolidation the last three days. A break above the consolidation high would signal a continuation of last week's bounce, while a break below the consolidation low would reassert the downtrend.

***Oil*** Despite early weakness after the OPEC decision to maintain current output levels, the United States Oil Fund ETF (USO) firmed after the gap and moved higher throughout the day. The ability to recover after bad news is bullish. The daily chart is little changed as USO battles the first resistance zone around 28-30. The Feb-Mar rally was the strongest since July. In addition, the early March gap is holding. Further strength above 30 would be impressive and open the door to the second resistance zone around 35. On the 30-minute chart, USO formed a higher low to keep the short-term uptrend in play. A triangle is taking shape over the last six days and a break above 29 would be bullish. A break below 25.8 would reverse the current uptrend.

***Bonds*** Bonds took a hit on Monday as the iShares 20+Yr T-Bond ETF (TLT) broke descending triangle support. The blame, of course, was attributed to supply fears. I have a feeling that every decline will be attributed to this fear. Government financing needs will be massive over the coming quarters. Not days, not weeks and not months. Quarters! This insures a steady stream of supply over the next few years. In addition, the corporate bond market is coming back to life. Pfizer is planning a big bond offering to fund its acquisition of Wyeth. There are a lot of bonds competing for what could become limited resources. On the price chart, the descending triangle support break signals a continuation of the downtrend. The first downside target is around 97 (T1) and the second is around 92-93 (T2). On the 10-Year Note Yield ($TNX) chart, an ascending triangle is taking shape with resistance around 3.05%. A break above this level would be bullish. Bonds will be focusing on the Producer Price Index (PPI) today, the Consumer Price Index (CPI) on Wednesday morning and the Fed policy statement on Wednesday afternoon. It could be a wild ride the next two days.

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.