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Jul 18, 2011
SPY Corrects to Retracement Zone after
Big Surge
The decline in stocks over the last six days looks like a correction after a
sharp advance. The major index ETFs moved sharply higher from mid June to
early July. From the June 15th low to the July 7th high, SPY was up over 6%,
while QQQ and IWM were up around 9%. Moreover, IWM and QQQ were up
eight days in a row after the July 7th close. This strong advance looks
impulsive in nature and is certainly entitled to a correction. Before hitting the
60-minute charts, let’s review the daily chart for SPY. The overall trend
remains up as SPY hit a new high on May 2nd and held above its March low
in mid June. There is a lot of support in the 124-126 area as well as some
resistance in the 134-136 area.
On the 60-minute chart, SPY broke resistance around 129-129.5 and surged
above 135 with a gap up on July 7th. This gap was quickly countered with a
gap down to form an island reversal. SPY declined below 131 with a falling
wedge taking shape last week. Support from the 50-61.80% retracement zone
and broken resistance is coming into play in 129.5-130.7 area, but the wedge
is still falling and momentum remains bearish. A surge above 132 is needed
to break wedge resistance. The Percent Price Oscillator (PPO) needs to
break back into positive territory to turn short-term momentum bullish again.
The Russell 2000 ETF (IWM) outperformed SPY on the way up and retraced
less on the way down. IWM firmed around 82 late last week, an area that
marks a 38.2-50% retracement of the prior advance. There is also potential
support here from the mid June trendline. I am marking falling wedge
resistance at 83.5 for now. CCI remains in bear mode after breaking below 20 last week. A move above +20 is needed to turn momentum bullish again.
Powered by Apple (AAPL), the Nasdaq 100 ETF (QQQ) surged from 54.27 to
59.36 in just eight days. The ETF was clearly overbought and ripe for a
correction of some sort. With a decline to around 57, the ETF retraced 38.2%
of the June-July advance. A falling channel took shape and QQQ broke above
the upper trendline with a last hour surge on Friday. Let’s see if IWM and SPY
confirm with breakouts. CCI remains in bear mode after the plunge below -20
last week. A confirming surge above +20 would turn momentum bullish.
A plunge in the Euro triggered a move into US Treasuries as the 20+ year
Bond ETF (TLT) surged the last two weeks. TLT met resistance near the June
highs and pulled back late last week. I don’t see any meaningful setup on this
chart right now. Treasuries should benefit as long as the Euro remains under
pressure.
The US Dollar Fund (UUP) remains in an uptrend overall, but very choppy
with violent swings over the last few weeks. The ETF established support
around 21.35 with lows from early and mid July. A break below these lows
would be short-term bearish. The indicator window shows the 3-month T-Bill
Yield ($IRX) trading below .05, which is about as close to zero as it can get.
This reflects a move away from the Euro and Euro-denominated bonds.
The 12-Month US Oil Fund (USL) broke resistance with a surge in late June
and early July. A triangle consolidation then took shape as the ETF
consolidated its gains. Broken resistance turned into support and is holding.
Last week’s range marks support and resistance. Look for a break above last
week’s high to signal a continuation higher. A break below last week’s low
would argue for a test of the June lows.
The Gold SPDR (GLD) went ballistic over the last two weeks. GLD broke
resistance around 147.5 the first week of July and never looked back. After a
7+ percent move, the ETF is short-term overbought and ripe for a correction
or consolidation. Broken resistance around 151-152 turns into the first support
zone to watch.
Key Economic Reports:
Mon - Jul 18 - 10:00 - NAHB Housing Market Index
Tue - Jul 19 - 08:30 - Housing Starts/Building Permits
Wed - Jul 20 - 10:00 - Existing Home Sales
Wed - Jul 20 - 10:30 - Oil Inventories
Thu - Jul 21 - 08:30 - Jobless Claims
Thu - Jul 21 - 10:00 - Philadelphia Fed
Thu - Jul 21 - 10:00 - Leading Indicators
Chart 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.
Art's Charts Home
« Programming Note: Upcoming Vacation Upgrades Strengthen Indicator Summary »
Jul 18, 2011
SPY Corrects to Retracement Zone after
Big Surge
The decline in stocks over the last six days looks like a correction after a
sharp advance. The major index ETFs moved sharply higher from mid June to
early July. From the June 15th low to the July 7th high, SPY was up over 6%,
while QQQ and IWM were up around 9%. Moreover, IWM and QQQ were up
eight days in a row after the July 7th close. This strong advance looks
impulsive in nature and is certainly entitled to a correction. Before hitting the
60-minute charts, let’s review the daily chart for SPY. The overall trend
remains up as SPY hit a new high on May 2nd and held above its March low
in mid June. There is a lot of support in the 124-126 area as well as some
resistance in the 134-136 area.
On the 60-minute chart, SPY broke resistance around 129-129.5 and surged
above 135 with a gap up on July 7th. This gap was quickly countered with a
gap down to form an island reversal. SPY declined below 131 with a falling
wedge taking shape last week. Support from the 50-61.80% retracement zone
and broken resistance is coming into play in 129.5-130.7 area, but the wedge
is still falling and momentum remains bearish. A surge above 132 is needed
to break wedge resistance. The Percent Price Oscillator (PPO) needs to
break back into positive territory to turn short-term momentum bullish again.
The Russell 2000 ETF (IWM) outperformed SPY on the way up and retraced
less on the way down. IWM firmed around 82 late last week, an area that
marks a 38.2-50% retracement of the prior advance. There is also potential
support here from the mid June trendline. I am marking falling wedge
resistance at 83.5 for now. CCI remains in bear mode after breaking below 20 last week. A move above +20 is needed to turn momentum bullish again.
Powered by Apple (AAPL), the Nasdaq 100 ETF (QQQ) surged from 54.27 to
59.36 in just eight days. The ETF was clearly overbought and ripe for a
correction of some sort. With a decline to around 57, the ETF retraced 38.2%
of the June-July advance. A falling channel took shape and QQQ broke above
the upper trendline with a last hour surge on Friday. Let’s see if IWM and SPY
confirm with breakouts. CCI remains in bear mode after the plunge below -20
last week. A confirming surge above +20 would turn momentum bullish.
A plunge in the Euro triggered a move into US Treasuries as the 20+ year
Bond ETF (TLT) surged the last two weeks. TLT met resistance near the June
highs and pulled back late last week. I don’t see any meaningful setup on this
chart right now. Treasuries should benefit as long as the Euro remains under
pressure.
The US Dollar Fund (UUP) remains in an uptrend overall, but very choppy
with violent swings over the last few weeks. The ETF established support
around 21.35 with lows from early and mid July. A break below these lows
would be short-term bearish. The indicator window shows the 3-month T-Bill
Yield ($IRX) trading below .05, which is about as close to zero as it can get.
This reflects a move away from the Euro and Euro-denominated bonds.
The 12-Month US Oil Fund (USL) broke resistance with a surge in late June
and early July. A triangle consolidation then took shape as the ETF
consolidated its gains. Broken resistance turned into support and is holding.
Last week’s range marks support and resistance. Look for a break above last
week’s high to signal a continuation higher. A break below last week’s low
would argue for a test of the June lows.
The Gold SPDR (GLD) went ballistic over the last two weeks. GLD broke
resistance around 147.5 the first week of July and never looked back. After a
7+ percent move, the ETF is short-term overbought and ripe for a correction
or consolidation. Broken resistance around 151-152 turns into the first support
zone to watch.
Key Economic Reports:
Mon - Jul 18 - 10:00 - NAHB Housing Market Index
Tue - Jul 19 - 08:30 - Housing Starts/Building Permits
Wed - Jul 20 - 10:00 - Existing Home Sales
Wed - Jul 20 - 10:30 - Oil Inventories
Thu - Jul 21 - 08:30 - Jobless Claims
Thu - Jul 21 - 10:00 - Philadelphia Fed
Thu - Jul 21 - 10:00 - Leading Indicators
Chart 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.