***Position Summary***
Summer is behind us, September is here, October is around the corner and the November elections are two months away. September is the worst month for stocks, October is a classic reversal month and the November elections could be bad for the GOP. The medium-term and short-term trends are up for stocks overall, but the advance has been tentative since mid August. Buying pressure is not as strong as before, but buyers still have the upper hand as stocks moved higher last week. SPY is in a resistance zone around 130-133, QQQQ is trading in a resistance zone around 39-40 and IWM is trading between its August and July highs – yet another resistance zone. Despite these resistance zones, the short-term uptrends have yet to breakdown and I will wait for bearish evidence before exiting longs or entering shorts. See table above for stop-loss details.
***Previous***
Last week was a pretty good week for stocks. All major indices gained with the Nasdaq and Russell 2000 putting in good performances. Volume was low, but this can be expected at the end of summer and price action remains the ultimate authority. Among the sectors, the Consumer Discretionary SPDR (XLY) and Consumer Staples SPDR (XLP) were both exceptionally strong last week. XLP moved to another new high, while strength in retail stocks led XLY higher. A drop in oil prices helped stocks as the U.S. Oil Fund ETF (USO) broke support at 65. Bonds moved higher during the week, but fell on Friday after the employment report. Gold got another bounce off support and the US Dollar Index remains in a tight trading range. I will cover the intermarket charts after the QQQQ, SPY and IWM analysis.
***Nasdaq 100 ETF (QQQQ)***
On the weekly chart, QQQQ broke falling price channel resistance for the third time in three years. The ETF consolidated right after the breakout and then continued higher last week. There is no reason to question strength as long as the breakout holds (37). The upper channel trendline marks the upside target around 45-46.
On the daily chart, QQQQ gapped up and surged above 38 in mid August. There was a small pullback, but the gap and breakout held as the stock continued higher last week. Rather, I should say that QQQQ inched higher over the last seven days. Even though the overall gain is respectable (38 to 39.1), it took seven days and this shows tentativeness among the bulls. A little shyness is understandable as QQQQ approaches a major resistance zone around 39-40. The 200-day moving average, the June highs and a 50-62% retracement of the Apr-Jul decline all converge to mark resistance around 39-40. I am concerned near this resistance zone, but the bulls still have the edge as long as last week’s lows hold (37.92). Failure in the 39-40 area and a move below 37.9 would be bearish.
Momentum on the 60 minute chart also reflects tentativeness among the bulls. RSI held support at 50 and edged higher the last few days. However, RSI barely made it above 60 and upside momentum was not strong. Nevertheless, RSI remains above 50 and momentum favors the bulls as long as last week’s lows hold (49). QQQQ broke falling flag resistance last week and worked its way higher. This breakout is bullish as long as it holds. A break below minor support at 38.6 would be the first sign of trouble and a break below key support at 37.9 would reverse the short-term uptrend.
***S&P 500 ETF (SPY)***
On the weekly chart, SPY held the 60-week moving average and lower channel trendline in June and July. The July surge broke the May trendline and the stock exceeded the June high over the last three weeks. This is all bullish and within the large rising price channel, which makes the upside target around 137. Despite this breakout, I am concerned with resistance zone around 130-133 that extends back the January high (red oval) and this could make the going tough.
On the daily chart, SPY held the mid August gaps and moved higher last week. Last week’s low marks key support and the ETF remains in a rising price channel (magenta trendlines). Even though I am concerned with resistance the 130-133 resistance zone, I will remain bullish as long as the channel and key support at 129 hold.
Momentum is not as strong as it was in mid August, but momentum favors the bulls and we have yet to see a breakdown. RSI held support at 50 last week and worked its way higher the last eight days. The blue trendline extends up from 14-July and this trendline captures the entire summer advance. Momentum favors the bulls as long as RSI holds this trendline and support at 50. On the price chart, SPY broke falling flag resistance last Monday and this breakout is holding. I am marking minor support at 129.8 and a move below this level would be the first sign of trouble. Key support is based on the flag low and a break below this level would reverse the short-term uptrend.
***Russell 2000 iShares (IWM)***
On the weekly chart, the Russell 2000 iShares (IWM) firmed over the last two months and is making an attempt to hold the rising price channel. The ETF broke below 70 in June and has gyrated around this level the last 12 weeks. There is a lot of support around 66-69 from the 60-week moving average, lower channel trendline and broken resistance (red oval). Even though evidence for support is clear, the stock has yet to break the July high and remains a laggard overall. Let’s see a break above 72.63 before getting too excited.
On the daily chart, IWM took out its early August high with an advance last week. The move was fairly strong and IWM is starting to show some needed leadership. More importantly, the ETF broke the upper trendline of the descending triangle and moved back above its 200-day. This is enough to turn bullish on the daily chart and set key support at 69. Even though last week’s gain occurred at the end of summer on low volume, it should hold and a move below 69 would be most negative.
On the 60 minute chart, IWM recovered after its support break at 69.5 and broke resistance at 70.5. I have reinstated the falling flag and this breakout is bullish until proven otherwise. Yes, the falling flag is skewed and does not look picture perfect, but we cannot ignore the breakout as long as it holds. A move back below minor support at 69.9 would be the first warning sign and a break below key support at 68.9 would reverse the short-term uptrend.
***Chart Highlights***
The U.S. Oil Fund ETF (USO) gapped down last Monday and stayed down. The move broke support at 65 and pushed USO to its lowest level since March. The break down is bearish for oil and this is likely to weigh on Energy related stocks. Look for a move above 68 to reverse this support break and turn bullish again.
The iShares ~20-year T-Bond Fund (TLT) remains in a rising price channel (magenta trendlines) and medium-term uptrend, but hit resistance at 88 last week and is getting overbought. Resistance stems from broken support and the Aug-05 trendline. TLT is up around 6% since early July and looks ripe for a consolidation or pullback.
The US Dollar Index is about as boring as it gets. The index broke support in early August and then consolidated the rest of the month. Look for a break above 86 to turn bullish and a break below 84 to signal a continuation of the Mar-May decline.
The StreetTracks Gold ETF (GLD) got another bounce off support at 60 with a gap up last week (blue circle). GLD also gapped up off support in mid August, but failed to follow through. Let’s see some follow through above 63 to turn bullish on bullion.
***Breadth***
SPY breadth remains strong overall and the 10-day moving average for AD Volume Net% is trending up. There are no concerns as long as it remains in positive territory and holds the green trendline.
Ditto for QQQQ breadth. The 10-day moving average for AD Volume Net% remains in an uptrend and in positive territory. QQQQ breadth has been stronger than SPY breadth and techs are showing some relative strength.
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 trends and price patterns. These can be as short as a few days or as long as a few weeks.
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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.
