Art's Charts

Big Economic Week Could Make or Break the Bulls

The short-term trend for stocks changed with Wednesday’s gap and breakout. The medium-term and long-term trends were already up. This means that all three trends are up again and we could see a challenge to the March highs. While I hate to play the fundamental card, the fate of Wednesday’s breakout and the challenge to new highs will likely depend on the market’s reaction to this week’s plethora of key economic reports. On the S&P 500 ETF (SPY) chart, the ETF gapped and broke trendline resistance with a surge above 138.50. The gap held and should be considered bullish as long as it holds. With Monday’s gap down and Wednesday’s gap up, we also have an island reversal on the charts. Because this three day reversal was so extreme and looks out of place, I am opting to draw a trendline right through the gap zone to define the short-term uptrend. At this point, the gap zone, trendline break and trendline extending up from early April mark first support at 138. A pullback or consolidation is allowed after the breakout, but a move below 138 would be deemed too far and call for a reassessment.

It is a HUGE week for economic reporting. Also note that earnings season remains in full blast. This is the week that could make or break the bullish case. Chicago PMI starts it off on Monday. ISM Manufacturing and Auto-Truck Sales are on Tuesday. The first two reports (PMI-ISM) will tell us a lot of about the current state of the economy and could set the tone for the week. The employment preview starts Wednesday with the ADP Employment Change Report. We also have Factory Orders on Wednesday. The Challenger Job Cuts will kick off Thursday and ISM Services will also be reported in the morning. Most likely the market will have already made its move by the time Friday’s big employment report hits. A series of worse-than-expected reports would probably derail last week’s stock market breakout and put sell-in-May back to the forefront. A series of better-than-expected reports would justify the stock market breakout and could lead to further gains.

NYSE and Nasdaq AD Volume Lines Establish Key Support Zones

A couple of indicators flipped this week, but the net result is the same as the indicator summary remains at +7. The Nasdaq AD Line shows too much weakness to be considered bullish, but it is offset by strength in the NYSE AD Line. Momentum flipped back to bullish as stocks surged over the last two days. Perhaps most importantly, the AD Volume Lines and the NYSE AD Line all established important support levels with the March-April lows. A break below these lows would likely produce enough selling pressure to turn the indicator summary negative. It has not happened yet though. Keep in mind that the indicator summary is an assessment of CURRENT conditions, which makes it a trend following type indicator. It is not predictive. This means it will turn negative after a market top or positive after a market bottom.

TLT Holds Support as Treasuries Remain Stubbornly Strong

The island reversals, up gaps and breakouts are holding. QQQ formed a lower low early this week, but IWM and SPY held above their early April lows. In fact, the recovery after Monday’s gap down was so swift that I am going to draw my trendlines right through it. This week’s higher lows (SPY/IWM) were followed by breakouts that produced higher highs with the move above the mid April high. At this point, we have a medium-term uptrend on the daily charts and now a short-term uptrend on the intraday charts. The medium-term uptrend was never in jeopardy. Short-term, it is important that these gaps and breakouts hold. SPY gapped above 138.5, consolidated for a few hours and then continued higher. I am marking support rather tight at 138. A move back below this level would suggest that the bulls are getting cold feet and call for a reassessment. RSI moved above 70 for the first time since late March. Overbought is a sign of strength, not potential weakness. Once again, I will set RSI support at 40.

SPY Forges Island Reversal - GLD Firms within Downswing

The Fed made another policy statement with little change in its outlook or wording. Apple produced another blow out quarter. Even though neither event produced a surprise, Apple’s coattails provided a big lift for the market overall. Most, if not all, of the gains came before the Fed statement. All sectors were up with technology, materials and consumer discretionary leading the way. Industrials and finance lagged somewhat because both were up less than 1%. The market did not fire on all cylinders yesterday, but there was clearly more strength than weakness. On the 30-minute chart, the S&P 500 ETF (SPY) produced an island reversal with a gap down on Monday and a gap up on Wednesday. The second gap negates the first to give the bulls the short-term edge. Even so, I am not that confident because resistance is at hand in the 139-139.5 area. Resistance here stems from the early April support break, 9-Apr gap and last week’s high. For now, I will treat the trendline break and gap as bullish until proven otherwise. A move below 137.9 would provide the first sign that Wednesday’s surge was a fluke. A strong surge should hold. A weak surge will fold. RSI broke its trendline and moved above 60 to turn momentum bullish.

Charts: AMT, AMZN, ATVI, DELL, FDX, IGT, SLM, TER, UTX

Careful out there. It is earnings season.
AMT Breaks Out to 52-week High.
DELL Hits Key Retracement.
SLM Forms Small Descending Triangle.
Plus AMZN, ATVI, FDX, IGT, TER, UTX.

SPY Moves into Gap Zone as QQQ Stalls at Channel Trendline

Apple is stoking the street with a big move after reporting earnings. While a strong open is expected, what happens after the open, and after the Fed statement, is more important. Actually, I think Thursday’s price action will hold the key to the next move in stocks. Trading is likely to remain choppy and news driven today. Thursday is when the dust will settle. On the price chart, the S&P 500 ETF (SPY) broke rising wedge support with a gap below 137, but moved higher almost immediately after the gap and is currently in the gap zone. Apple and Fed expectations may have limited selling pressure and kept buoyed the bulls. The trendline extending down from early April and the top of the gap zone mark resistance in the 138 area. While a break above 138.15 would be short-term bullish, volatility could keep the market in check today. RSI resistance remains in the 50-60 zone and a break above 60 would turn short-term momentum bullish.

SPY Gaps Down and Breaks Wedge Support

Stocks are short-term oversold, it is turnaround Tuesday, Apple reports earnings today and the bigger trend (6 months) remains up. On top of all this, traders will also be gearing up for the start of the Fed meeting today and policy statement on Wednesday (12:30PM). Stocks moved lower on Monday, but managed to firm after the initial gap and consolidate somewhat. On the SPY chart, the ETF broke wedge support with a gap below 137 on the open. SPY closed below 137 and the gap zone around 137-138 marks the first resistance zone. A quick move back above 138.15 would challenge the validity of this wedge break. I added 15 cents as a buffer. It would take a break above key resistance at 139.5 to fully reverse the current downtrend. RSI moved below 30 as downside momentum accelerated on Monday. Momentum resistance is set in the 50-60 zone.

Charts of Interest: AMX, ANF, APD, AZO, COH, GLW

APD Breaks Rising Flag Support.
AZO Forms Pennant with Strong Up Volume.
LXK Forms Bullish Engulfing on Big Volume.
Plus AMX, ANF, APD, COH

SPY Battles Rising Wedge Trendline as GLD Forms Pennant

Stocks look heavy as selling pressure hit Friday afternoon and remains early Monday. $SPX futures are down around 10 points in early trading (5AM ET). Bonds and the Dollar are up, while gold and oil are down. Stocks surged last Tuesday, but gave back these gains with a decline on Thursday. There was another surge on Friday morning, but stocks failed to follow through and dipped in the afternoon for a weak close. While there has not been a noticeable increase in selling pressure, it seems that buying pressure has dried up and the market may be falling under its own weight. On the SPY chart, the ETF broke support with a sharp decline in early April and then rebounded with a rising wedge. This wedge retraced 50-61.80% of the prior decline and formed an ABC corrective pattern, both of which are typical for bounces within bigger downtrends. The rising wedge trendline is holding so far and I am marking key support at 137. A move below this level would reverse the eight day uptrend and call for a continuation of the early April decline. The March low marks next support in the 134 area.  In the indicator window, RSI triggered a bearish signal with a break below the rising trendline and dip below 40. The indicator met resistance in the 50-60 zone late last week and remains in bear mode for now.

Indicator Summary Weakens along with Small Caps

The indicator summary dipped to +7 this week after two downgrades. The bulk of the evidence is still bullish, but a few indicators weakened with the April decline. The NYSE AD Line and AD Volume Line briefly broke their March lows. The Energy Bullish% Index ($BPENER) dipped below 50% to become the weakest sector. SPY momentum deteriorated and small-caps continued to underperform. The challenge of the indicator summary is to distinguish between corrections and the start of something bigger. Heck, this is the challenge with all pullbacks. For now, I have yet to see enough bearish evidence to turn medium-term bearish. However, note that the six month cycle is turning bearish and stocks are still ripe for a deeper correction, which could involve a deeper pullback or extended trading range.