SPY Trends and Influencers – September 18, 2011

by Greg Harmon

Last week’s review of the macro market indicators looked for the week to be positive for US Treasuries ($TLT) and the US Dollar Index ($UUP). Gold ($GLD) looked biased higher and Crude Oil ($USO) lower, but both could also continue in the respective bull and bear flags. The Shanghai Composite ($SSEC) and Emerging Markets ($EEM) continued to favor the downside. Volatility ($VIX) looked to remain elevated with a bias towards heading higher. This backdrop suggested favoring a downside bias in the US Equity Index ETF’s $SPY, $IWM, and $QQQ. They might continue to hold their bear flags but a big push higher in the US Dollar Index and US Treasuries would likely push Volatility higher out of its range and lead to the Equity flags breaking lower.

The week began with the US Dollar and US Treasuries rising only to have both pullback later in the week. Gold moved lower but remained in the broad range while Crude Oil moved higher. The Shanghai Composite did run lower while Emerging Markets consolidated at their low from the prior week. Volatility spiked Monday before falling back but remaining elevated. The Dollar Index stall and Treasury Bond pullback lead to a sizable rally in the Equity Index ETF’s. How does this impact the coming week? Lets look at some charts.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.

iShares Barclays 20+ Yr Treasury Bond Fund Weekly, $TLT

US Treasuries, as measured by the ETF $TLT, held the gap higher this week. The weekly chart shows the gap filled from the previous week with a Relative Strength Index (RSI) that is working off an overbought condition and a Moving Average Convergence Divergence (MACD) indicator that is starting to fall. The charts set up for the $TLT to pullback next week. There is support at 109.30 and a gap at 108.98 before stronger support at 106. Consolidation there could lead to the next move higher and completion of the flag target at 120.70 and the symmetrical triangle break at 137. Below it watch out.

SPY Daily, $SPY

SPY Weekly, $SPY

The SPY continued to move higher in the broad flag or channel finishing the week with a long and strong bullish candle on the weekly chart. The RSI on the weekly chart is rising and the MACD is improving, but the 20 week SMA is about to cross down bearishly through the 50 week SMA. On the daily chart the RSI and MACD are both rising as well, but the same weakness of falling SMA’s, all but the 200 day SMA on this timeframe, temper the euphoria. Look for continued upside in the channel next week with a move over 123.40 finding resistance at the top of the channel. Over that and it is time to get bullish. A move lower should find support the flag and channel at 114 before it becomes a screaming short with a target of 95.

Next week looks to bring more consolidation for Gold in a broad range, but with the bias to the down side if forced to pick a break direction. Crude Oil, the US Dollar Index and US Treasuries all also look to be headed lower in the short run. The Shanghai Composite looks to continue lower while Emerging Markets consolidate further. Volatility looks to remain elevated with any break bias to the downside as Equity Index ETF’s SPY, IWM and QQQ are set up to extend their gains. The QQQ is by far the strongest of these index ETF’s and should be watched for broad direction. Use this information as you prepare for the coming week and trade’m well.

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