***Executive Summary***

• Stock Market: Medium-term Bullish, Short-term Bearish
• Broad Selling Pressure on Friday
• Financial ETFs Stall at Resistance
• XLY and XLE also Hit Resistance
• IWM and SPY Pull Back in Resistance Zones
• QQQQ Gaps Down
• UUP Surges off Key Retracement
• GLD Down as Dollar Surges
• USO Falls As Dollar Surges
• IEF Poised to Break Flag Resistance (video link)

***Stock Market Stance*** Medium-term Bullish and Short-term Bearish. There is still a chance that we will see some end-of-quarter window dressing, but selling pressure is picking up steam as the automakers teeter on bankruptcy. The issue is not so much the automakers themselves, but the mountains of Credit Default Swaps and the psychological impact on the economy. A bankruptcy could trigger these swaps and cost banks billions. For now, let's see what happens after today's gap. The major-index ETFs were overbought most of last week and ripe for a correction. I think this correction is getting underway and could extend for the next 1-3 weeks. Hence, I am short-term bearish until this correction runs its course.

Recap: The medium-term evidence turned bullish on 13-March. There were positive breadth extremes on 10, 12, 17 and 23 March. The VIX and VXN broke support levels as confidence increased 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:

• Monday: No economic reports
  -Earnings: Layne Christiansen, Oxford Industries
• Tuesday: Case-Shiller, NAPM Chicago, Consumer Confidence
  -Earnings: Gigamedia, Lennar, Steelcase, BH Fuller, Sealy
• Wednesday: ISM Mfg, Construction Spending
  -Earnings: Worthington, TechTarget, Unifirst
• Thursday: Jobless Claims, Factory Orders, Money Supply
  -Earnings: CarMax, Monsanto Micron, RIMM
• Friday: Employment Report, ISM Non-Mfg Index, Bernanke Speaks
  -Earnings: AZZ Inc

***Technical Highlights***

***Broad Selling Pressure*** Friday's breadth showed the strongest selling since 5-March, the day before the big rally began. Both AD Net% and AD Volume Net% for the S&P 1500 finished at –77%. While not enough for a negative breadth extremes (-90%), readings below –75% reflect broad selling within the S&P 1500. This pickup in selling pressure could foreshadow a pullback that either retraces a portion of the March advance or tests the March lows. Of note, AD Net% for QQQQ hit –92% for a negative breadth extreme as techs led the sell off.

***Financials Lag*** One more time, I will show the charts for the financial ETFs. All three are hit resistance, formed bearish candlestick patterns and looks ripe for a pullback.XLF formed a dark cloud pattern on 18-19 March, surged with a long white candlestick last Monday and then consolidated the last four days. A harami formed on Monday-Tuesday with the long white candlestick and smaller black candlestick. The next three inside days just extended this harami, which is also a bearish candlestick reversal pattern. As noted all last week, the Financials SPDR (XLF) and Regional Bank HOLDRS (RKH) are trading near resistance from key retracements and the triangle consolidations (late Jan to early Feb). The Broker Dealer iShares (IAI) is meeting resistance from the Dec-Feb highs. I get vertigo just looking at these charts.

***XLY Hits Top of Its Zone*** While I am at it, I may as well throw in the Consumer Discretionary SPDR (XLY), which surged some 24% from the March low. The ETF is way overbought, at resistance and ripe for at least a pullback. XLY gapped up on Thursday and fell back with a small black candlestick on Friday. A gap down today would form the essence of an island reversal. A close below 19.5 would make last week's gap a failed gap.

The Energy SPDR (XLE) is hitting resistance from the 62% retracement. After a long white candlestick on Monday, the ETF formed four inside days for an extended harami. XLE even gapped down on Friday and also looks quite vulnerable to further weakness. ***Major-index ETFs***

***Medium-term Trend*** Signs of weakness appeared on Friday as the major-index ETFs opened weak and closed weak. It is just one day for now and prior pullbacks were just 1-2 days. Will this one be different? The odds certainly favor a deeper correction or consolidation at this point. All three ETFs became overbought again last week. At Thursday's close, SPY gained 22% in 13 days, QQQQ was up 22% and IWM advanced 29%. Even so, all three are still trading within their resistance zones. IWM and SPY retraced 50-62% of the prior decline and met resistance near the middle of the prior consolidations (late Jan-early Feb). QQQQ met resistance from the January-February highs. The combination of overbought levels and resistance argue for a corrective period. After massive surges, a 38-62% pullback would entail 7-12% corrections over the next few weeks. Not small by any means. There is also a chance that we see a test of the March lows.

***Short-term Trend*** Technically, the trend remains up for QQQQ, SPY and IWM. All three ETFs surged to new highs with gaps and big gains on Thursday. These gaps turn into the first support zones to watch for signs of weakness (S1). Well, the first signs of weakness appeared on Friday as all three gapped down and stayed down. Moreover, all three are overbought and we have yet to see a decent correction in three weeks. Even though the quarter has yet to close and we could still see some end-of-quarter window dressing, I remain short-term bearish because the odds of a correction remain above average.

***Inter-Market Charts***

***Dollar*** The Dollar surged on Friday and extended its gains early Monday. The reason: potential bankruptcies in the auto industry spurred a flight-to-safety. With stock futures down sharply this morning, the risk aversion trade is back. I would not count on bankruptcy for the automakers just yet though. It could be a governmental threat to get some concessions. In addition to the automaker news, the currency markets will also have to deal with the G-20, which meets this week and will issue some sort of communiqué. Don't expect anything earth shattering from 20 disparate governments in crisis mode. On the price chart, the US Dollar Bullish ETF (UUP) firmed at the 62% retracement and surged with a big gap on Friday. Resistance from broken support around 26 is the next stop. The Euro ETF (FXE) shows the reverse of the Dollar. FXE hit retracement resistance and gapped down. Broken resistance turns into support around 129-130 for the first target. The Yen is also down against the Dollar this morning. The Japanese Yen Trust ETF (FXY) was the weakest currency against the Dollar because it gave back the entire post-Fed surge. FXY will be testing support from the March lows now.

***Gold*** It is possible that gold benefits from a flight-to-safety, but strength in the Dollar could offset this trade. While the Dollar is sharply higher this morning, gold is down fractionally. This is not a good sign for bullion. On the daily chart, the Gold SPDR (GLD) gapped down and remained weak on Friday. Even though a doji formed at support, gold closed down as the Dollar closed up. The inverse relationship is working again. On the 30-minute chart, GLD broke the wedge trendline and continued lower on Friday. There is a chance of support around 90-91, but the wedge break rule for now and this projects further weakness below 90, which would trigger a medium-term support break on the daily chart. GLD needs to break back above 92.5 to reverse this bearish development.

***Oil*** Weakness in stocks and strength in the Dollar are bearish for oil. In addition, talk of weak demand is resurfacing and OPEC voted to keep supplies unchanged on 15-Mar. On the price chart, the United States Oil Fund ETF (USO) has been moving higher within a rising flag the last 5-6 weeks. The medium-term trend remains down, but the short-term trend is up as long as this flag rises. USO retraced 50-62% of the prior decline and stalled over the last seven days. This could be it for the rally. A move below flag support would signal a continuation of the bigger downtrend. On the 30-minute chart, USO gapped down and broke the first support level on Friday. This gap is short-term bearish as long as it holds. Broken triangle resistance turns into a support zone for the first target around 28-29.

***Treasuries*** Treasuries are benefiting from today's flight-to-safety trade and the Bernanke buy order. Money is moving out of stocks (risk assets), into the Dollar and into Treasuries this morning. There were some positive developments in the Treasury market last week and it looks like we will see breakouts today. The 20+ Year T-Bond ETF (TLT) formed a bullish engulfing on Thursday and moved higher on Friday. The ETF remains short of a consolidation breakout though. The 7-10 Year T-Note ETF (IEF) edged higher on Friday and looks poised to break the flag trendline today. This would signal a continuation of the prior surge and target a move towards the December highs. While the short-term looks bullish for Treasuries, the long-term outlooks remain clouded by the governments financing needs and discontent from China.

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.