***Executive Summary***

• Stock Market: Medium-term Bullish, Short-term Bearish
• Lackluster Breadth and Volume
• Lopsided Move for Financials
• Mark to Stinkin Market
• Monday's Gaps Turn Resistance
• Targeting the 50% Retracements
• UUP Shows Resilience
• GLD Remains With Falling Wedge
• USO Stalls Near Short-term Support
• Treasuries Remain a Mess (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:

• 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
• Tuesday: Consumer Credit
  -Earnings: Bed Bath Beyond, Alcoa, Mosaic, Ruby Tuesday

***Technical Highlights***

***Modest Buying Pressure*** The major indices were up all day Tuesday and finished with gains ranging from 1.16% to 1.78%. Despite pretty impressive gains, breadth was not that impressive in the S&P 1500. AD Net% finished at +48% and AD Volume Net% ended at +54%. This shows some sizable pockets of weakness yesterday and leads me to believe that yesterday's advance was just a short-term oversold bounce that will fail.

***Volume Uninspiring*** Volume picked up a bit on the S&P 500 and Nasdaq 100, but it was not that inspiring overall. SPX volume was just above average, while NDX volume finished below average. The bulls need more fuel (volume) and participation (breadth) to make this more than an oversold bounce.

***Financials Surge*** Financial, utilities and technology led the market higher yesterday. It is positive to see technology leading the way. The gain in financials was also impressive, but overall participation was not. Consumer staples and energy declined on the day. Advances in the remaining sectors were small. Yesterday was all about financials and their outsized gain that lifted the overall market. It would be preferable to see these gains spread evenly among the sectors. This would show broad market strength, not lopsided strength from one sector.

With the Financials SPDR (XLF) trading in the high single digits, 5% moves have been normal and occurred regularly since mid January. Yesterday's bounce does little to change the technical picture. The ETF has lots of resistance around 10 and Monday's gap down remains unfilled. I consider this gap short-term bearish unless filled on a closing basis. After an 11% decline on Friday-Monday, XLF is entitled to a bounce or consolidation. Long-term, XLF could be entering a long basing period. XLF was rescued from the abyss in early March, but has yet to form a base or successfully test support.

***Mark to Stinkin Market*** With the Financial Standards Accounting Board set to vote on 2-April, there will be a lot of talk concerning mark-to-market over the next two days. Easing valuation requirements would be positive for banks, but it would not actually change the value of the underlying assets. It simply allows accountants more flexibility in valuing these assets. Some call it cooking the books! Instead of valuing an illiquid instrument at 10 cents on the Dollar, banks would be allowed to value them at 50 cents on the Dollar. This would help their balance sheet immensely. However, it is just an accounting trick that opens the valuation to interpretation. Here are a couple of snippets from CBSMarketWatch.com:

FASB has already provided auditors with flexibility in how they can value illiquid assets; however, accounting firms have been averse to employ such authority for fear of liability. The FASB guidance would allow bank auditors to use "significant judgment" when valuing the illiquid assets for which they don't believe they will be able to collect all the amounts due.

However, Espen Robak, president of Pluris Valuation Advisors in New York, said changes to mark-to-market rules would allow banks and other corporations to fudge their numbers and that would lead investors to worry more about the valuations, not less. Robak said he believes investors will be much more conservative in how they value bank or other company balance sheets if the rules are changed.

I think mark-to-market news is already priced into the banking stocks. Moreover, the ability to provide hypothetical valuations on toxic assets is not the silver bullet. It may help in the short-term, but not in the long-term. Transparency is the key and adding valuation flexibility does not improve transparency.

***Major-index ETFs***

***Medium-term Trend*** No change. 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 bounced off support (S1) and met resistance at the top Monday's gaps (R1). As noted yesterday, this was the area to expect resistance on an oversold bounce. The major-index ETFs actually opened strong with a gap up and worked their way higher most of the day. A sharp sell-off in the final hour paired gains significantly and reinforced resistance. The inability to hold gains and finish strong is negative. I expect a move below support (S1) over the next few days.

***Inter-Market Charts***

***Dollar*** I am impressed with the Dollar's ability to recover its losses from 18-March. It was Wednesday 18-March when the Fed made its bold policy statement that caused the US Dollar Bullish ETF (UUP) to decline sharply. The ETF opened at 25.87 and closed at 25.25 to form a long black candlestick. With a big move on Friday-Monday, the ETF recovered most of these losses and showed resilience. While there are plenty of reasons to be bearish the Dollar, I think there are more reasons to be bearish the Euro and the Yen. Moreover, the sharp recovery over the last three days shows strength, not weakness. UUP has resistance around 25.9, but I expect a break above this level and challenge to the Nov-Mar highs. Translating this to the Euro ETF (FXE), I would expect a move towards the 129-130 support zone. The Japanese Yen Trust ETF (FXY) fell sharply on Tuesday and the head-and-shoulders pattern remains in play. A break below 100 would target further weakness into the mid 90s. This would be bullish for the Dollar.

***Gold*** Gold remains tricky. While weakness in the stock market could promote the flight-to-safety trade, strength in the Dollar could weigh on gold. On the daily chart, the medium-term trend is up with the Gold SPDR (GLD) testing support around 90. However, the inability to follow through on the 18-Mar surge shows hesitation among the bulls. 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. Careful here.

***Oil*** No change. Further weakness in stocks and strength in the Dollar could weigh on oil. 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. There was a small bounce on Tuesday. Is that it? Watch the Dollar and the stock market for clues.

***Treasuries*** No change. 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.