***Position Summary***
Trading is getting volatile and risky. Hope from the Fed and its cohorts is stimulating the bulls. Economic news, credit woes and the trend favor the bears. The daily chart/trends are bearish and we are not even close to a major breakout. The 60-minute chart chart/trends are also bearish, but QQQQ, SPY and IWM are showing some resilience and challenging resistance again. Follow through to yesterday's recovery would reverse the short-term downtrends.
The economic docket is quite full today and these events could move the market before the open, just after the open and in the afternoon. The Consumer Price Index (CPI) will be released before the open and this will provide an indication of inflation. Consumer Sentiment will be released at 10AM and this will show the mood of the consumer. I would expect negative news on both fronts. Bernanke speaks at 1PM and his remarks could further affect trading.
I remain short IWM and will continue to hold this position with two stops. I will exit 1/2 of the position at 68.1 and the remainder at 71. The first stop-loss is just for a little insurance to prevent a winning position from turning into a breakeven position. Yesterday's short in Ryder ® did not work as the stock opened weak and then surged with the market. With volatility on the increase and the Fed meeting next week, I am going to refrain from new positions for now.
Market moving events for the next five trading days:
- Friday: Consumer Price Index, Consumer Sentiment, Bernanke Speaks
-Earnings: Ann Taylor Stores (ANN) - Monday: Industrial Production
-Earnings: Basin Water (BWSN) - Tuesday: Fed Policy Statement (2:15PM)
-Earnings: Goldman Sachs (GS), Lehman Bros (LEH) - Wednesday: EIA Petroleum Status Report
-Earnings: Nike (NKE), Morgan Stanley (MS) - Thursday: Quadruple Witching, Jobless Claims, Leading Indicators
-Earnings: FedEx (FDX), Bear Stearns (BSC)
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***Technical Highlights***
***Rebound Day*** Stocks opened weak after the Commerce Department reported a surprise .6% drop in February retail sales. The expectations were for a .2% gain. Selling pressure was compounded by the demise of the Carlyle Capital Group, a hedge fund that was unable to meet its margin calls. Despite this bad news, stocks firmed in the first 90 minutes and surged into the early afternoon. This surge was attributed to good news from Standard & Poor's, which suggested that the end was in sight for the sub-prime write downs at major banks. While I really do not put much credence in the comments from a rating agency that failed to foresee the problems, stocks did stage a recovery on good volume that merits attention. On the S&P 500 ETF (SPY) chart below, the ETF held above Monday's low and held Tuesday's gap. The recovery put SPY back near the Tuesday-Wednesday highs and follow through now holds the next key.
***Volume Picks Up*** Volume on the NYSE and Nasdaq surged on Tuesday and again on Thursday's recovery. A high volume advance and a high volume recovery show that interest is picking up. Even though volume levels were still below the levels seen from November to February, the market deserves some credit for two big up days this week.
***Breadth Falters*** Even though stocks staged a big recovery on Thursday, the breadth stats for the S&P 500 ETF were not impressive. AD Net% finished at a mere +30% (green oval) and AD Volume Net% finished at +16% (red oval). On Tuesday AD Net% surged above +90% and AD Volume Net% surged above +80%. Judging by breadth, we have yet to see an impressive follow through to Tuesday's big breadth day.
***Sectors Mixed*** The sector SPDRs also turned in a mixed performance. Four were up, four were down and one was unchanged on the day. That is not inspiring. The Consumer Discretionary SPDR (XLY) edged up .10% and the Finance SPDR (XLF) edged down .24%. These are the two to watch for a sustainable bounce in the broader market. XLY broke support at 31 in early March and this break is holding. A surge back above broken support would be the first positive. Key resistance remains at 33 and a break above this level is required to fully reverse the medium-term downtrend. XLF is testing support around 24. Even though the ETF is in a clear downtrend when looking at the close-only chart, we can see some evidence of firmness with Tuesday's surge and Thursday's wide-ranging day. XLF established short-term resistance at 26 and a surge above this level would be the first positive. Key resistance remains at 28.
***Careful Out There*** Before moving on to the major index ETFs, I would like to address some of the fundamental news out there. The Fed is taking a page from Hillary Clinton and using the "kitchen sink" strategy. This is not a partisan argument, just an analogy of trying the stop what looks like the inevitable. Clinton represents the Fed and the bulls. Obama represents the current trend and the bears. The trend is clearly down and favors the bears. However, the Fed and its surrogates are pulling out all the stops to revive the markets. The Fed is cutting interest rates and making funds available to buy mortgage-backed securities. Paulson is talking about fixes, while Standard & Poor's is taking about an end in sight to write downs. The Fed policy statement on Tuesday is also another chance to juice up the markets. This strategy definitely offers hope and has a short-term impact (1-8 weeks perhaps), but will it be enough to turn the tide (bigger downtrend)? Somehow I doubt it.
First, I think we are in the middle stages, at best, of a bear market. As noted earlier this week, bear markets typically last 18 months and decline 30% from the highs. For the S&P 500 ETF (SPY), that implies a move to around 110 before all is said and done. There will be counter trend advances along the way, but the big double top break down points to an extended decline. Economists and CEOs are now starting to admit to a recession. The news is usually bad during the middle stages of a bear market. More importantly, the market goes down on bad news in the middle stages. The problem traders face is sharp counter trend rallies based on false hope.
***Firming at the January Lows*** QQQQ, SPY and IWM are all firming at the January lows. Keep in mind that these are intraday lows. On a closing basis, all three decisively broke below their January (closing) lows. As far as the medium-term trend (1-6 months) is concerned, all three remain below key resistance from their February highs. In addition, the 29-Feb gap is holding and we have yet to see a strong follow to Tuesday's big advance. Yesterday's recovery does not count. Bottom pickers may be wading into the water, but the overall trend is down until there is either a resistance breakout or big breadth follow through to Tuesday's advance.
***Challenging Short-term Resistance*** QQQQ, SPY and IWM gapped down on Thursday, but all three held above Monday's low and held Tuesday's gap. The ability to hold both is quite positive and the surge is even more impressive. All three are now trading just below key resistance. The resistance zones stem from broken support and the 5-March high. QQQQ is the closest to a breakout and looks the strongest of the three. The key to a successful breakout is participation from all three: big techs, large-caps and small-caps.
Good day and good trading -Arthur Hill
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Disclaimer: Arthur Hill is not a registered investment advisor. The analysis presented is not a solicitation to buy, avoid, sell or sell short any security. Anyone using this analysis does so at his or her own risk. Arthur Hill and TD Trader assume no liability for the use of this analysis. There is no guarantee that the facts are accurate or that the analysis presented will be correct. Past performance does not guarantee future performance. Arthur Hill may have positions in the securities analyzed and these may have been taken before or after the analysis was present.
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about: The Daily Swing is posted every trading day around 6AM ET and focuses on short-term strategies for QQQQ, SPY and IWM. In addition, at two stock setups are featured every day with a detailed trading strategy. As warranted, coverage extends to broad market topics, key sectors and industry groups and inter-market securities (gold, bonds, the Dollar and oil).
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Sources: Data from Bloomberg.com, CBOT.com, Kitco.com and ino.com; Charting from Metastock (equis.com). Closing data from Reuters.com, eSignal.com, MS QuoteCenter and Yahoo! Finance.
