Oil Breaks Support as Stocks Remain Overbought

And now for the Employment Report....and Factory Orders....and ISM Services. This is like the golden trio of economic reports. In one day we will cover employment, manufacturing and services. Stocks are overbought. Treasuries are at resistance and well above their late January lows. The Dollar is oversold after a sharp three week decline. The market’s reactions to today’s reports could shake up the situation – for the short-term at least. There is no real change on the charts. The S&P 500 ETF (SPY) broke flag resistance on Tuesday morning and extended its gains on Wednesday. This surge reinforces key support at 130. A move below this level and an RSI break below 40 would reverse the short-term uptrend. Those looking for a quicker signal can watch the gap/breakout and December trendline at 131.50. A move back below this level would fill the gap and negate the flag breakout. A little caution is advised because it is very possible that stocks move into a trading range type correction instead of a pullback type correction.

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Stocks and treasuries have been negatively correlated since December 19th, which is when stocks bottomed and treasuries peaked. However, that relationship was challenged when both stocks and treasuries advanced from January 25th to February 1st. With three important economic releases pending, today is as big as it gets for the 20+ Year T-Bond ETF (TLT). TLT surged above 120 and then consolidated. A break above 119.50 would signal a continuation higher, while a move below the support zone (broken resistance) would signal an extension of the six week downtrend. There is likely to be a big gap on the open today and I will be watching what happens AFTER the gap.



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The US Dollar Fund (UUP) remains in a downtrend and is way oversold after a sharp decline the last three weeks. The Euro is likely to be in focus next week with Greek talks reaching a crescendo and the European Central Bank (ECB) making its policy statement on Thursday. On the price chart, I am still watching resistance in the 22.20 area for a breakout. An RSI break above 60 would confirm the breakout.



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The US Oil Fund (USO) broke support and sank to its lowest level of the year. Broken support in the 37.75 area turns into the first resistance zone. USO is already short-term oversold and we could see a bounce back to this area, provided stocks and the Euro remain strong. RSI resistance remains in the 50-60 zone.



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No change. The Gold SPDR (GLD) is up over 13% from its late December low (±149). Even though the ETF is overbought, there are simply no signs of weakness. GLD surged above 169 last week, held its gains and edged higher the last 4-5 days. As noted last week, gold is the un-currency and continues to attract money as an alternative to the Euro and Dollar. The lows of the last few days mark first support at 167. Key support remains at 160 for now, but will likely be raised in the coming days.



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Key Economic Reports:                                           

Fri - Feb 03 - 08:30 – Employment Report   
Fri - Feb 03 - 10:00 - Factory Orders    
Fri - Feb 03 - 10:00 - ISM Services
Thu - Feb 09 - 08:00 – European Central Bank Policy Statement

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.