***Executive Summary***

• Stock Market: Medium-term Bullish, Short-term Bearish
• Broad Selling Pressure Again on Monday
• Low Volume on Friday and Monday
• Major-index ETFs Gap Down
• IWM and QQQQ Firm at Short-term Support
• UUP Surges to Broken Support
• GLD Forms Falling Wedge
• USO Is Oversold and at Support
• IEF Breaks Flag Resistance
• ETF and Stock Setups Video by 8AM. (video link)

***Stock Market Stance*** Medium-term Bullish and Short-term Bearish. Broad selling pressure knocked the stock market back over the last two days. Downside breadth was quite strong over the last two days, but volume was light. Despite low volume, the broadness of the decline indicates that we are entering a corrective period that could last 1-3 weeks. Therefore, I will remain short-term bearish until there is evidence that this pullback has run 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:

• 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
• Monday: No economic reports
  -Earnings: Apogee, Immucor

***Technical Highlights***

***Broad Selling Pressure*** Breadth reflected broad selling pressure on Monday. There were negative breadth extremes for AD Volume Net% in the Nasdaq 100, S&P 500 and S&P 1500. A mere correction should not feature a negative breadth extreme. Selling pressure should be less intense with AD Net% and AD Volume Net% holding above the –80% levels, preferably above –60%. These negative breadth extremes reflect the fragility of the current market environment.

***Volume Declines*** On a positive note, the S&P 500 and the Nasdaq 100 declined with low volume over the last two days. In fact, volume levels were the lowest of the month on Friday and Monday. A bullish pullback should occur on reduced volume. Overall, I would paint the breadth-volume picture as mixed. Breadth shows selling pressure that is intense enough to foreshadow an extended period of weakness. However, low volume offsets the negative breadth extremes and argues for a relatively short pullback – perhaps 2-3 days. I would put more emphasis on breadth at this stage.

***Major-index ETFs***

***Medium-term Trend*** With a gap down and sharp decline on Monday, the major-index ETFs made their first attempt to establish resistance. Will this be just a 1-2 day pullback (like 19-20 March) or should we expect more? The major-index ETFs were overbought after big advances the last three weeks. In addition, I outlined resistance zones based on key retracements, prior consolidations and prior highs. At this point, I think the major-index ETFs are entering a corrective period that will last a few weeks. There are two ways to correct and alleviate overbought conditions. First, a security can move sideways with a trading range. This occurred from 9-30 December. Second, a security can decline and retrace a portion of the prior advance. I expect the major-index ETFs to work their way towards the 50% retracement marks over the next 1-3 weeks.

***Short-term Trend*** The major-index ETFs gapped down and stayed down for the second day running. Last Thursday's gap did not hold and was filled with another gap. This means an island reversal formed in a number of charts - QQQQ and IWM included. Despite these gaps and trendline breaks, QQQQ, SPY and IWM firmed at their second support zones (S2). This is the first place to expect a bounce. Mondays gaps and support breaks turn into the first resistance levels (R1). It is a tricky period right now. Prior pullbacks ended after 1-2 day pullbacks and the major-index ETFs are trading around 5% below their March peaks. This is likely to entice some fund managers or traders that missed the March rally. I would not be surprised to see a small bounce towards the first resistance levels (R1) and then a continuation lower.

***Inter-Market Charts***

***Dollar*** The Dollar advanced further as the flight-to-safety trade continued on Monday. The G-20 meeting starts on 2-Apr and there could be some Dollar moving comments coming from this stage over the next few days. Unfortunately, we cannot predict the comments or the reaction to the comments. Overall, I think the Dollar may be like Citibank and AIG – too big to fail and too important to fall too much. China may talk tough, but they hold around two trillion Dollars and certainly do not want to see the Dollar fall sharply. Europe and Asia do not want to see the Dollar fall because it makes their exports less competitive. On the price chart, the US Dollar Bullish ETF (UUP) surged back to broken support with a big move over the last two days. This makes the ETF short-term overbought and at resistance. While I think this move could extend further, a little consolidation or even a pullback is likely at this stage. The Euro ETF (FXE) dropped sharply the last two days, but remains above broken resistance (now support) around 129-130. FXE is short-term oversold and ripe for a consolidation or a small bounce. The Japanese Yen Trust ETF (FXY) actually bounced yesterday with a move off support. A small head-and-shoulders pattern could be taking shape with the right shoulder currently under construction. A move below 100 would confirm this pattern and target further weakness towards the mid 90s.

***Gold*** Gold is very tricky right now. Strength in the Dollar is weighing on Gold, but weakness in the stock market and the GM debacle are promoting the flight-to-safety trade. Gold was up early Monday, but fell back and closed with a loss. Evidently, strength in the Dollar carried the day. There is no change on the daily chart, The medium-term trend is up with the Gold SPDR (GLD) testing support around 90. A break below 90 would be medium-term bearish and argue for a move towards the low 80s. On the 30-minute chart, the decline over the last seven days looks like a falling wedge, which could be a bullish consolidation. GLD also has support around 90-91 from last week's low and the 62% retracement area. This is a good spot for a bottom pick with a stop-loss just below 90. A break above the wedge trendline would be positive, while a break above resistance at 92.5 would argue for a continuation of the breakout surge.

***Oil*** Further weakness in stocks and strength in the Dollar zapped oil for the second day running. The United States Oil Fund ETF (USO) gapped down and stayed down with a break below the flag trendline. Despite the apparent breakdown on the daily chart, USO is already short-term and at support on the 60-minute chart. The ETF is down around 10% in two days and could get an oversold bounce into the 30-31 area.

***Treasuries*** Treasuries remain a mess. The bulls are inspired by the flight-to-safety trade and the Bernanke buy program. The bears are driven by the US government debt needs and Chinese reluctance to buy more Treasuries. These themes could remain for a long time. Bonds were strong early Monday as Fed buying and flight-to-safety dominated trade. Once the Fed buying stopped and the stock market stabilized, bonds retreated from their morning highs. The 20+ Year T-Bond ETF (TLT) remains stuck in a range. The 7-10 Year T-Note ETF (IEF) broke flag resistance and this is technically bullish. The UltraShort T-Bond ETF (TBT), which can only be used for short-term positions (1-3 weeks), remains range bound with a falling channel. TBT is currently at the bottom of that channel, but a sustained bounce is unlikely as long as the Fed continues its buy program.

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.