Art's Charts

IWM Trades with Tight Range as TLT Holds its Breakout

Guess what? Reports indicate that the Euro-zone bailout fund is smaller than EU finance ministers once thought. There is also a “secret” report suggesting that Italy is on the verge of blowing up the Euro zone. Yes, the rumors continue to fly. These latest rumors are putting a damper on stock futures and the Euro early Wednesday (5AM ET). In addition to the European issues, don’t forget that it is a big week for US economic reports. Among others, we have the Fed’s Beige Book on Wednesday, ISM Services on Thursday and the big Employment Report on Friday. Short-term traders will no doubt have plenty of volatility and excitement the next three days. It should be noted at the bigger trends for stocks and the Euro remain down. This means that any bounces are considered corrections within this bigger downtrend. On the price chart, SPY gapped up on Monday, formed a small falling flag and broke flag resistance early Tuesday. This breakout, provided it holds, is short-term bullish and targets a move to the next resistance zone in the 122-123 area. I am marking first support at 119.40. A move below this level would negate the breakout and put Monday’s surge on notice. RSI surged to the 50-60 zone early Monday and did not break this resistance area to stay in bear mode. StochRSI moved below .80 to signal a short-term downturn in momentum. StochRSI, being the hyperactive oscillator that it is, can be used to identify short-term overbought conditions within a larger downtrend. A move back below .80 signals an end to these short-term overbought conditions and serves as the first bearish signal.

Stocks Gap Up and Hold Gaps as SPY Forms Island Reversal

Stocks opened strong and finished strong with a broad advance on Monday. While it is still considered an oversold bounce within a bigger downtrend, there is room for further upside before resistance from broken support levels comes into play. SPY gapped up to form an island reversal over the last few days. There is a gap below 118.50 last Wednesday and a gap above 118.50 on Monday. While this pattern is technically bullish, I think that gaps have lost some of their luster because they have become so common. From a short-term perspective, chartists should at least respect the gap as bullish as long as it holds. SPY consolidated in the 119-120 area with a falling flag after this gap. This area marks resistance from the 38.2% retracement and pennant. A break above 120 would signal a continuation higher and target a move to the next resistance zone around 122-123. Anything is possible these days. RSI is also at resistance in the 50-60 zone. A break above 60 would turn momentum bullish. Note that SPY, QQQ and IWM are all at make-or-break levels. A failure at resistance and break below the Monday afternoon lows would provide the first clue that Monday’s pop was fluke.

Charts of Interest: AZO, DDS, LH, SUN, TGT

DDS Forms Pennant after Sharp Decline.
LH Challenges Flag Resistance.
SUN Gaps above Wedge Resistance.
Plus AZO and TGT.

Stocks and Euro Poised for Oversold Bounce

Stock futures are trading sharply higher on news (rumors) of an Italian bailout. Also note that it is a big week on the economic front. See the listing of economic reports further down in this commentary. Market moving rumors and innuendo are all part of the game these days. Traders can expect big gaps up on positive rumors, and big gaps down on negative rumors. As far as I can tell, most of the proposed solutions are stop-gap measures that will not totally solve the problem. This goes for the US and Europe. It is going to be a long slog. Stocks were way oversold and ripe for at least an oversold bounce. Bonds and the Dollar were overbought and ripe for a pullback. At this point, a bounce in stocks would be considered a corrective advance within a bigger downtrend. On the S&P 500 ETF (SPY) chart, the ETF declined over 8% the last nine days. RSI became oversold on the 17th and remained below 40 all last week. Talk about a strong downtrend. At this point, we can start estimating resistance levels for an oversold bounce. The last pennant and 38.2% retracement mark the first zone in the 119-120 area. Further up, broken supports, the first pennant and the 50-61.80% retracement zone mark resistance in the 122-123 area.

Indicator Summary Turns Negative as Breakouts Fail

Monday’s sharp decline was enough to trigger a slew of downgrades in the indicator summary. I noted on Friday that the indicator was already looking vulnerable and it would not take much to tilt the balance back to the bears. Monday’s big decline marked the fifth straight down day for SPY. Widespread weakness produced support breaks in the AD Volume Lines, major index ETFs and key sectors ETFs. This means the October breakouts did not hold. The only surprises came from the volatility indices, which did not break resistance. Perhaps there will be a delayed reaction because the bulk of the evidence is now bearish. Today's update is coming early because I will be off on Friday. Happy Thanksgiving!

Stocks Consolidate as Treasuries Stay Strong

The stock market can fall simply from a lack of buying pressure. In other words, it does not always take an increase in selling pressure to produce a decline. It is pretty easy to come up with reasons not to buy. The major index ETFs broke support levels with sharp declines the last seven days. The finance sector and big banks are leading the way down. Europe remains a mess and the major European indices are breaking down fast. The US government is dysfunctional and black Friday now starts before Thanksgiving. Forget about the January affect, it happened in October! China is slowing and the emerging market indices are getting creamed. The outlook is downright bleak for the bulls. On the S&P 500 ETF (SPY) chart, the ETF plunged, formed a pennant, plunged again and formed another pennant on Tuesday. This consolidation works off some of the short-term oversold conditions. A break below pennant support would signal another continuation lower. While Tuesday’s highs mark first resistance and a little breakout would be short-term positive, I would not consider it anything more than an oversold bounce. The first significant resistance level resides around 123, which is marked by broken support and Friday’s pennant. Programming note: Art’s charts will not be published on Friday. Happy Thanksgiving!

SPY Becomes Oversold as TLT Becomes Overbought

With the major index ETFs down 5-6% in the last six trading days, the market is short-term oversold and this could pave the way for a consolidation or oversold bounce. Trading could also get real tricky as volume dries up for the Thanksgiving holiday and the potential news flow rattles the markets. Europe will not be on holiday so we can expect the usual flow of rumors and innuendo. It may be a good time to start the Thanksgiving holiday early and take a break from trading until Monday. On the price chart, SPY broke down with a decline from 127 to 119 (6.2%). Broken support in the 123 area turns into the first resistance zone. This is confirmed by the pennant highs.

Charts of Interest: ALTR, IR, M, NVDA, URBN, WDC

NVDA Buck the Market with Big Surge.
URBN Firms with Falling Wedge.
WDC Forms Harami with two Inside Days.
Plus ALTR, IR and M.













This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.

SPY Forms Pennant as TLT Holds Breakout

The risk-off trade remains the flavor of the month. Stocks broke down last week as the Dollar and Treasuries moved to their highest levels for November. The S&P 500 ETF (SPY) broke triangle support with a sharp decline on Wednesday-Thursday and then consolidated on Friday with a pennant or small triangle. There is possible support still around 122 from the November lows, but I think the triangle breakdown is the dominant chart feature on both the daily and 60-minute charts. This means we have a medium-term trend change in the making as well. A break from Friday’s pennant would signal a continuation lower and target a move to around 119. The mid October lows mark support here. While a break above pennant resistance would be positive, this would still be considered an oversold bounce. I would not be impressed unless a bounce carried past resistance at 125.  







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Even though government bonds do not seem like the best place to be right now, the 20+ year Bond ETF (TLT) continues to attract money as a relative safe-haven. On the price chart, TLT broke flag resistance with a surge from 115 to 120 last week. This is a pretty big move. Moreover, the bigger trend is up and this breakout is in harmony with that bigger trend. Treasuries and Stocks are negatively correlated and this is a bearish development for stocks.



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The US Dollar Fund (UUP) continues to benefit from the European woes and the risk-off environment. UUP broke flag resistance the second week of November and has been zigzagging higher the last three weeks. Key support remains at 21.60. RSI held support in the 40-50 zone in mid November and remains in bull mode as long as this level holds.



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The US Oil Fund (USO) did a classic pop and drop mid week. The trend was clearly up as the ETF surged above 39.5 with a 5% move early in the week. This gain did not hold as the ETF moved right back to 37.50. It looks like some sort of buying climax that is likely to mark a top, especially if stocks continue lower and the Dollar moves higher. Using the Raff Regression Channel, I am marking first resistance at 38.20. Flag resistance turns into support for a downside target in the 36-36.50 area.



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For whatever reason, stocks and gold have been positively correlated since early October. Perhaps the strong Dollar is weighing on gold. Perhaps cash strapped governments are selling gold to raise money (Italy). GLD broke support with a sharp decline on Wed-Thur and then formed a consolidation on Friday. The trading pattern is just like SPY. A break below consolidation support would signal a continuation lower with a downside target in the low 160s.



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Key Economic Reports:                                               
                                               
Mon - Nov 21 - 10:00 - Existing Home Sales        
Tue - Nov 22 - 08:30 - GDP
Tue - Nov 22 - 14:00 - FOMC Minutes    
Wed - Nov 23 - 07:00 - MBA Mortgage Index
Wed - Nov 23 - 08:30 - Initial Claims       
Wed - Nov 23 - 08:30 - Personal & Spending    
Wed - Nov 23 - 08:30 - Durable Orders
Wed - Nov 23 - 09:55 - Michigan Sentiment    
Wed - Nov 23 - 10:30 - Oil Inventories        
Thu – Nov 24 – 10:00 – Thanksgiving!!

Charts of Interest:    Tuesday and Thursday in separate post. 

This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.

Indicator Summary is Still Positive, but Looks Vulnerable

Even though there is no change in the indicator summary, it would not take much to tilt the balance back to the bears. With this week’s sharp decline, the major index ETFs are on the verge of support breaks that would question the October breakouts. Support breaks in the major index ETFs would also lead to many Double Top Breakdowns on the P&F charts of the component stocks, which would lead to weakness in the Bullish Percent Indices. The AD Volume Lines are also testing their October breakouts. The volatility indices are challenging resistance and another push higher would signal a breakout in fear. In short, another sharp decline or down week would be enough to turn this indicator summary negative.