***Executive Summary***

• Stock Market: Medium-term Bullish, Short-term Bearish
• Another Bailout Announcement
• Elliott Count for SPY
• IWM and SPY Back off Resistance
• SPY Forms Falling Flag
• UUP Remains Under Pressure
• GLD Stalls After Surge
• USO Benefits from Weak Dollar
• TLT Is Still Stuck in Consolidation (video link)

***Stock Market Stance*** Medium-term Bullish and Short-term Bearish. Stocks are set to surge higher this morning as Wall Street anticipates another bailout plan for financial institutions. As noted last week, stocks do not care where the money comes from. Stocks are just interested in the sound of money sloshing throughout the system. Bonds and the Dollar have other ideas.

The medium-term evidence turned bullish on 13-March. There were three positive breadth extremes (10-12-17 March). The VIX and VXN broke support levels. The financial, consumer discretionary and technology sectors led the way during the March surge. Fundamentally, the Fed and Treasury are throwing all kinds of money into the system and the big stimulus package is coming on board.

Despite big gaps this morning, I remain short-term bearish for the major-index ETFs. Let's see what happens after the gaps and after the announcements. I would not be surprised to see a choppy trading range unfold over the next week or two. The prospect of hope will entice buyers, but the realities will keep sellers in the game. QQQQ, SPY and IWM became seriously overbought last week and I am looking for a longer correction or consolidation before the rally fully resumes.

Market moving events for the next few trading days:

• Monday: Geithner Plan, Existing Home Sales
  -Earnings: Tiffany, Walgreen, Sonic, Techtarget
• Tuesday: Chicago Fed President Evans Speaks
  -Earnings: Carnival, Commercial Metals, McCormick, Talbots, Jabil Circuit
• Wednesday: Durable Goods Orders, Crude Inventories, New Home Sales
  -Earnings: DSM, CKE Restaurants, Paychex, Red Hat
• Thursday: GDP, Jobless Claims, Gheithner Speaks
  -Earnings: Best Buy, Conns, Fred's, Gamestop, Heelys, TIBCO
• Friday: Consumer Sentiment
  -Earnings: Finish Line, KB Home

***Technical Highlights***

***Another Bailout Pop Brewing*** Will these bailout announcements ever end? Geithner is expected to announce another bailout plan on Monday and stock futures are pointing to a sharply higher open. The Fed announced a $1.25 trillion dollar plan on Wednesday. Geithner's plan offers at least $500 billion towards the purchase of toxic assets and this amount could even reach $1 trillion. Where is this money going to come from? I doubt Congress has the nerve to pass another spending/bailout bill. Perhaps it will just come from the printing press (inflation), which would be bearish for bonds and bullish for gold. In principle, I agree that these financial firms need to be purged of their toxic assets (bad loans). It appears that the Fed (Bernanke) and the Treasury (Geithner) are moving in the right direction. I wonder if it is enough though. There are plenty of economists criticizing the plan already. Here's a quote from Paul Krugman, the Nobel prize winning economist from the NY Times:

Why was I so quick to condemn the Geithner plan? Because it’s not new; it’s just another version of an idea that keeps coming up and keeps being refuted. It’s basically a thinly disguised version of the same plan Henry Paulson announced way back in September.

While most critics have good points, we must remember that the Obama administration does not have cart-blanche here. Congress and public opinion must be addressed and this often waters down the whiskey.

The charts above show the Financials SPDR (XLF) and the Regional Bank HOLDRS (RKH) with dark cloud patterns on Thursday and further weakness on Friday. After a massive seven-day surge, this is the first meaningful pullback. There are two ways to alleviate overbought conditions: correct with a decline or consolidate with a trading range. A decline could form an ABC correction that retraces 50-62% of the seven day surge. Should a trading range take shape, we could see a trading range between 8 and 10.

***Elliott Wave Review*** ***Elliott Wave Review*** The Elliott Wave count favors another leg down. Even though the 7-day surge featured strong breadth, it looks like Wave 4 of a 5 Wave decline. Another leg down would form the fifth wave of a bigger fifth wave. Yes, this would be the infamous fifth of the fifth! While this could indeed be the case, a fourth wave up does not usually feature such strong breadth and buying pressure. Sure, fourth wave advances can be sharp and sudden, but not with three positive breadth extremes.

***Major-index ETFs***

***Medium-term Trend*** The major-index ETFs pulled back over the last two days to affirm resistance for the first time in two weeks. SPY and IWM retraced 50% of the Jan-Mar decline and met resistance from broken support. This is classic technical analysis. QQQQ overshot its retracements, but is meeting resistance from the 17-Feb gap. In addition to these resistance levels, the major-index ETFs were quite overbought after the seven day surge. Experience suggests that such strong buying pressure does not dissipate overnight. Buyers that missed the surge step in after the first pullback. This could be happening with this morning's gap. Lots of fund managers do not want to miss the boat.

***Short-term Trend*** The major-index ETFs pulled back from oversold levels over the last two days. Is this the extent of the pullback? QQQQ and IWM are trading near support from broken resistance. SPY formed a falling flag over the last two days. A break above flag resistance would argue for further strength. Another move higher from current levels would make the Thursday-Friday pullback quite shallow. While an upside resumption is certainly possible, I would favor a deeper pullback towards the first support zones (S1). This means today's pop could be a dud.

***Inter-Market Charts***

***Dollar*** The Dollar is getting hammered again this morning. Proposed bailouts from the Fed and the Treasury will dilute the Dollar to the tune of $2 trillion. The dust will eventually settle and the focus will return to the problems in Europe and Japan, but all eyes are on the US right now. With big moves last week, the charts have become skewed and it will take a few weeks for tradable patterns to emerge. The US Dollar Bullish ETF (UUP) broke support with a long black candlestick and the Euro ETF (FXE) broke resistance with a long white candlestick. The Japanese Yen Trust ETF (FXY) broke minor resistance with a surge last week, but hit a bigger resistance zone around 105.

***Gold*** Gold seems to benefit from every currency shock. Gold was strong when the Euro was under pressure (mid-Dec to mid-Jan). Gold surged when the Swiss France gapped down on 12-March. Most recently, gold surged as the Dollar declined last week. The message is clear: currencies are dangerous right now. The Gold SPDR (GLD) formed a massive bullish engulfing to affirm support around 87-88. With a higher low forming and the medium-term trend up, I expect a move above 100 over the next few weeks. On the 30-minute chart, GLD broke wedge resistance and formed a tight consolidation the last two days. The ETF is short-term overbought and could pull back to broken resistance, which should act as support around 91-92.

***Oil*** A rising stock market and falling Dollar are bullish for oil and other commodities. Even though the medium-term trend remains down, the United States Oil Fund ETF (USO) is currently in the midst of a counter trend rally. This bounce looks like a rising flag and the ETF moved above the 28-30 resistance zone late last week. Rising flags are bearish patterns, but they are short-term bullish as long as they rise. On the 30-minute chart, USO broke triangle support and this breakout is holding. First support level is set at 28 (S1). A break below this level would negate the triangle breakout and be an early sign of weakness. Key support remains around 25.8 (S2) and a break below this level would fully reverse the short-term uptrend.

***Bonds*** The iShares 20+Yr T-Bond ETF (TLT) surged after the Fed announced its plan to purchase $300 billion of long-term Treasuries on Wednesday. We still do not know which long-term Treasuries the Fed will purchase though (7, 10, 20 or 30 year). Despite this announcement, TLT remains range bound on the daily chart with support around 100 and resistance around 107. There was no breakout and we have yet to see follow through. Frankly, lack of follow through and the inability to break resistance reflect underlying weakness. The Fed-Treasury plan amounts to some $2 trillion and this is inflationary down the road. Short-term traders may see a light at the end of the tunnel, but long-term traders see another train heading right at them. Until there is a breakout at 107, I would maintain a bearish bias towards 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.