Stocks corrected somewhat over the last three days, but managed to recover after a weak open on Monday. Risk-on is in the air this morning after the EU agreed to a “fiscal compact”. Stocks futures, oil, gold and the Euro are higher in early trading (4AM ET). On the 60-minute chart, SPY remains in a short-term uptrend defined by the Raff Regression Channel and key support at 130. The decline over the last three days looks like a falling flag that retraced 61.80% of the prior surge (±127.5 to ±133.5). The ETF gapped down on Monday’s open, but immediately rebounded and edged higher the rest of the day. A break above flag resistance would signal a continuation higher. Even though the bigger trend is up, playing breakouts is risky with stocks overbought and the six week trend so mature. In the indicator windows, RSI tested the 40 level as SPY bounced off support at 130. Note that the economic reporting docket is chock-o-block this week and we have lots of earnings reports still to come. Exxon Mobile (XOM), Pfizer (PFE), US Steel (X) and UPS (UPS) report before the open, while Amazon (AMZN), CH Robinson (CHRW), Seagate Tech (STX) and Unisys (UIS) report after the close.
StochRSI is hyperactive version of RSI. It is the Stochastic Oscillator applied to RSI, which makes it an indicator of an indicator. When the short-term trend is up, StochRSI can be used to identify very short-term oversold conditions with a move below the .20 level. A surge from below .20 to above .80 is the early momentum signal that the short-term uptrend may be resuming. Be careful with this indicator because it is quite volatile. Chartists may even consider adding a 5-day EMA to smooth the line a bit and reduce signals. With this EMA, chartists could simply look for a move above .20 to signal that a new upswing is beginning (green arrows). There were good signals early in the short-term uptrend (late December and mid January), but the signals have soured as the trend becomes extended.