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The Daily Swing - Arthur Hill
Friday, 21 November 2008

***Executive Summary***

• Thanksgiving Holiday for TDTrader.com
• Trading Stance Is Bearish
• Large-caps Take Big Hits
• Google Sector Graphic
• NYSE and Nasdaq Volume Surges
• GDX Forms Falling Flag (NEM, ABX)
• QQQQ-SPY-IWM Getting Oversold
• GLD Holds Support
• Bonds Surge In Flight to Safety (video link)

***Trading Stance*** Reserved…

***Technical Highlights***

***Large-caps Take Big Hits*** The stock market was jolted with big selling again on Thursday. The major-index ETFs were down over 5% with large-caps leading the way lower. All sectors were down with Financials SPDR (XLF) and Energy SPDR (XLE) loosing over 10%. Despite such big losses overall, many of the breadth indicators did not hit negative breadth extremes. Selling was concentrated in financials and large-caps, which explains why AD Volume Net% for SPY hit a negative breadth extreme. In addition, AD Net% for SPY and ISI hit a negative breadth extreme. Even so, five of the eight breadth indicators did not hit negative breadth extremes. This is mildly positive because fewer stocks participated in yesterday's decline. However, emphasis is on the word "mildly", not on the word "positive". Net New Highs plummeted as new 52-week lows expanded, while the AD Lines and AD Volume Lines moved to new lows.

***A Few Gainers Out There*** I ran across an interesting sector graphic from Google Finance that shows 12 sectors with the percentage change for the sector overall. The horizontal red-green bars show the percentage of stocks up and down within the sector. Despite yesterday's rout, a fair number of stocks in some key sectors were up. Most of the losses were concentrated in large-caps, which dominate volume and the market capitalization weighted indices or ETFs. Despite a large decline in the financial sector, there were a fair number of stocks with gains (green bar). From this table, it appears that the healthcare and consumer discretionary sectors attracted the most buying interest yesterday. Healthcare is a defensive sector and this is not a surprise. The consumer discretionary is not and this is a bit of a surprise. The green bars in this table also confirm the lack of negative breadth extremes in IWM and QQQQ.

***Volume Surges*** Citigroup (C) declined over 25% with volume exceeding 700 million shares. This stock accounted for around 1/3 of NYSE volume. It is also a Dow component and a key component for the Financials SPDR (XLF). Volume on the NYSE and the Nasdaq surged to its highest level. Even without Citigroup, Nasdaq volume surged to multi-week highs. Microsoft (MSFT) was the most active Nasdaq stock with volume around 140 million. Believe it or not, this is also potentially positive. High volume declines signal capitulation that can often lead to a counter-trend rally. Before getting too bullish, remember that we had all sorts of capitulation signs in mid October. These signs simply led to a choppy trading range and ultimately a breakdown in November.

***Gold Miners Hold Firm*** The inter-market analysis with GLD is towards the end of this commentary, but I would like to point out some relative strength in the Gold Miners ETF (GDX) yesterday. First, the ETF shows relative strength by holding above its October low. Most ETFs and stocks broke below their October lows. Second, the decline over the last few weeks looks like a falling flag. Even though the decline overshot the 62% retracement, the ETF showed some signs of firming with a spinning top type candlestick yesterday. This candlestic has a small black body with long upper-lower shadows, which denote the intraday high-low. Spinning tops show indecision that can foreshadow a reversal. Firmness in the face of broad market weakness is positive. A flag breakout would target further strength towards the upper 20s. Yesterday I featured ABX and RGLD. Today I am showing ABX and Newmont Mining (NEM), two of the three biggest holdings for GDX.

***Major-Index ETFs***

***Breaking to New Lows*** QQQQ, SPY and IWM broke below their October lows over the last two days to affirm the medium-term downtrends. While I expect lower prices, we could see an oversold bounce before heading lower. SPY is down around 24% in 12 days, while IWM and QQQQ are down around 29%. This is extreme selling pressure. The red boxes show resistance zones based on broken support. An oversold bounce could extend into these zones and then fail. Key resistance (medium-term) is based on last week's highs and any strength from here would be deemed insignificant as long as these levels hold.

***Another Failure at Resistance*** QQQQ, SPY and IWM started the day weak, but rebounded with a move towards their resistance zones. QQQQ moved into its resistance zone, but IWM and SPY fell just short. Selling pressure kicked in after lunch and all three moved to new lows. The resistance zones remain and the upper end marks key resistance. The thin blue trendlines extending down from yesterday's highs define the current downswings. A break above these trendlines would start an upswing towards the resistance zone.

***Inter-Market Charts*** The U.S. Dollar Index ($USD) edged higher, but not with a lot of confidence. It is hard to have confidence in a currency when the auto industry and financial sector are on the brink. Nevertheless, the triangle breakout is holding and the uptrend remains in place. Look for a move below 86 to negate this breakout and target a correction towards the low 80s.

The streetTRACKS Gold ETF (GLD) continued to hug resistance and this is positive. Moreover, the ETF gapped up five days ago and this gap is largely holding. A move below 72 would fill the gap and reinforce resistance. However, a break above resistance would target a move towards the low 80s. The 30-minute chart expands on the five day consolidation. It is choppy, but support at 72 is holding and I think we may see an upside breakout soon.

No change here as the decline in the United States Oil Fund ETF (USO) continued unabated. Looking for signs of strength in the economy? Look for an upturn in oil prices.

Bonds stole the show yesterday as the iShares 20+ Year Bond ETF (TLT) surged above 104 with its biggest move in years. My TLT data goes back to July 2002 and this was by far the biggest advance since then. Bonds are getting as overbought as stocks are oversold. The breakout is clearly bullish as money seeks safety for the long-term. Yes, the flight to safety is moving further out in time and this shows even more risk aversion.

Good day and good trading -Arthur Hill Click Here for a Free Trial

Good day and good trading -Arthur Hill

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About: The Daily Swing is posted every trading day around 7AM ET and focuses on trading strategies for QQQQ, SPY and IWM. A video accompanies the written commentary with further insights into gold, oil, bonds and the Dollar. Videos featuring stock setups are published on Tuesdays and Thursdays.
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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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