***Executive Summary***

• Stock Market: Medium-term Bullish, Short-term Bearish
• Positive Breadth Extremes
• Positive Reaction to News
• Financials Still Overbought
• IWM and SPY Remain in Retracement Zones
• SPY Surges to 10-day High
• UUP Firms at Key Retracement
• GLD Fails to Follow Through
• USO Extends its Flag Advance
• TLT Forms Wedge on 30-minute Chart
• ETF-Stock Setups Video by 8:30AM (video link)

***Stock Market Stance*** Medium-term Bullish and Short-term Bearish. Yesterday's surge and the reaction to the Geithner plan were impressive. However, this puts the major-index ETFs right where they were last Wednesday: overbought and ripe for a correction or consolidation. I have yet to see any evidence of stalling yet, but the odds still favor a correction or consolidation over the next 1-3 weeks. Therefore, I will remain with a short-term bearish stance. Weakness from current levels would be viewed as a correction within a bigger uptrend.

The medium-term evidence turned bullish on 13-March. There were three positive breadth extremes (10-12-17-23 March). The VIX and VXN broke support levels as confidence increases in the market. 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.

Market moving events for the next few trading days:

• 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
• Monday: No economic reports
  -Earnings: Layne Christiansen, Oxford Industries

***Technical Highlights***

***Positive Breadth Extremes*** For the third time in the last two weeks, there was another buying stampede that produced positive breadth extremes in the S&P 1500 breadth stats. AD Net% surged to +96% and AD Volume Net% ended at +97%. In addition to three positive breadth extremes (10-12-23 March), S&P 1500 breadth was also exceptionally strong on 17-18 March. There have been four days with positive breadth extremes in the S&P 500 (10, 12, 17 and 23 March). One day can be from shorting covering, but stampedes like this often mark the beginning of a bull market. At the very least, the two week buying stampede put in a low that should hold for 1-3 months. Even with this bullish surge, new 52-week lows and new 52-week highs were equal on Monday and the 10-day SMA for Net New Highs is approaching the zero line. Of note, there were also big surges in July and November. These surges turned into choppy advances when the 10-day SMA for Net New Highs reached the zero line. The surge was the easy money. The hard money came after the surge.

***Reaction is More Important*** While there are plenty of misgivings surrounding the Geithner plan, there were no misgivings in Wall Street's reaction. Who cares if the government is putting up 94% of the capital and taking 94% of the risk? Money is money! The reaction to the news is more important than the news itself. In a nutshell, the government is giving money and incentive to private managers. These managers now have the opportunity to buy toxic assets with little risk and lots of reward potential. It is not a perfect plan, but Washington cannot be expected to produce a perfect plan. The goal is to purge the toxic assets (bad loans) and clean up the banks. It basically amounts to private management of public funds. Here is an interesting take. The banks do not have cash flow problems. In fact, even the bad banks are flush with cash from operations. The problems reside on the balance sheet. In other words, we are talking paper losses and capital deficiencies. These banks can continue to operate as long as there is not a run on deposits. Confidence in the system is the key here. Washington is buying time until the credit markets turn around and the economy rebounds.

***Financials Lead*** All nine sectors were up with financial, energy and consumer discretionary leading the way higher. The smallest gainers were healthcare, consumer staples and utilities. Even these laggards surged over 3.5% each. Financials were the biggest beneficiaries as the Financials SPDR (XLF) surged 16%, the Regional Bank HOLDRS (RKH) was up over 20% and the Broker Dealer iShares (IAI) advanced over 12%. Despite these big surges, the technical picture remains unchanged. All three are trading near resistance zones and short-term overbought again. In the last 10 days, RKH is up 65%, XLF is up over 51% and IAI is up over 39%. Buying at current levels still risk a substantial pullback. Think in reverse of the November-January periods. RKH and XLF became severely oversold in November and alleviated these conditions with a rising wedge. Both became severely oversold again in January and formed triangle consolidations. At this point, I am prepared to wait for a bullish consolidation or correction before jumping on the train.

***Major-index ETFs***

***Medium-term Trend*** Just how impressive is the 10-day surge? Well, it is the third 20% surge in the last five months! SPY surged 19.6% in late October (7 days) and 20.6% in late November (11 days). The current surge is 20.7% in 10 days. The late October surge ended abruptly and preceded a sharp November decline. The late November surge evolved into a choppy trading range from early December to early January. While I think this surge has a whole lot more fire power than the prior examples, I also think the prudent trade is to wait for a pullback or consolidation. The major-index ETFs are clearly overbought. IWM and SPY are trading in the middle of retracement zones. The red rectangles mark a 38-62% retracement of the January-March decline. Buying in these zones with overbought conditions risks a correction or consolidation. QQQQ is leading the pack, but this ETF is also near resistance from the Jan-Feb highs and the November trendline.

***Short-term Trend*** QQQQ, SPY and IWM raced to new highs yesterday. All three gapped up, held the gaps and continued higher in the afternoon. It was an impressive performance, but puts the ETF right where they were last Wednesday: overbought and ripe for a pullback or consolidation. Sorry to sound like a broken record, but buying now would be chasing the market. The green rectangles mark the first support zones.

***Inter-Market Charts***

***Dollar*** Despite the big announcement from the treasury department, the US Dollar Bullish ETF (UUP) actually held up pretty good on Monday. Remember, we are comparing apples to apples here (currencies to currencies). The US government is doing everything it can to prop up the financial system. Europe is also busy, but not doing near as much. Foot dragging from the European Central Bank (ECB) could be detrimental to the Euro because European banks are in bad shape too. Moreover, pressure is on the ECB and Bank of Japan to push their currencies lower. On the price charts, the US Dollar Bullish ETF (UUP) is firming near the 62% retracement mark (surprise, surprise). The ETF is clearly oversold and we could see a bounce back to broken support, which turns into resistance. The news cycle is likely to move away from the US now and focus will return to Europe and Japan. The Euro ETF (FXE) is overbought and hitting resistance from the 62% retracement as well. This is as good a spot as any for a pullback towards broken resistance, which turns into support. The Japanese Yen Trust ETF (FXY) remains with a double top and the support break turned into a resistance zone. There was a bit of an overshoot, but the Yen fell back quite sharply the last two days. The Yen is the weakest link here and could fall towards the mid 90s.

***Gold*** Lack of follow through has me concerned with the Gold SPDR (GLD). In addition, strength in the stock market detracts from gold as a safe-haven. After a big bullish engulfing and surge off support last Wednesday, the ETF consolidated the last three days. For now, the surge off support is holding and medium-term support remains at 87-88. A break below this level would be medium-term bearish. On the 30-minute chart, the pullback over the last three days looks like last week's failed flag (pink lines). Last Wednesday, GLD broke down and moved to a new low in the morning. The miraculous afternoon recovery and surge above 92 were impressive, but GLD formed another flag consolidation the last three days. With weakness late yesterday, GLD broke the lower trendline and this looks like another failed flag. GLD needs a break above 94 to revive this advance.

***Oil*** No change. 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 last Wednesday, but has yet to follow through as three black candlesticks formed. I remain with a bearish bias on bonds. While the surge was impressive, TLT has yet to actually break resistance. The prior move was down (January) and this gives the consolidation a bearish bias. Until this bias changes with a breakout, I would expect a move towards the mid 90s. On the 30-minute chart, TLT surged last week and pulled back the last three days. The pullback looks like a falling wedge with resistance at 104. This is the first level to watch for an upside breakout.

Good day and good trading -Arthur Hill

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Breadth Charts ---------------------------------

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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.