SPY follows through on reversal day

Stocks moved higher on Monday with broad participation. All of the major indices were up 1% or more. All sectors were up with the Consumer Discretionary SPDR (XLY) leading the way. The Financials SPDR (XLF), however, was clearly the weakest link with a fractional gain (+.27%). This could develop into a problem and I will be watching XLF support from last week's low. Semis were strong as the Semiconductors HOLDRS (SMH) gained over 3%. Despite relative weakness in finance, the S&P 500 ETF (SPY) opened strong and closed strong to build on Thursday's reversal day. Thursday's low now becomes medium-term support. Failure to hold the gains since Thursday morning would reverse the three week advance.

On the 60-minute chart SPY broke above flag resistance on Friday and continued higher on Monday. Short-term, it is important that this breakout holds. After all, strong breakouts hold, weak breakouts fold. Broken resistance around 111 turns into a support zone. For a little buffer, I am marking the support zone at 110.7-111. A move below 110.7 would negate this breakout. With SPY trading around 112 and RSI near 70, the ETF is already short-term overbought. That is not necessarily bearish. It just increases the chances of a pullback or consolidation.

All trading leads to Friday morning, which marks the employment report. Gaps and/or big moves are possible, but it is difficult to predict the employment report or the market's reaction to the report. Therefore, it is important to have a buffer heading into this report. We will get employment previews with the ADP report on Wednesday and Initial Claims on Thursday.

Tuesday-10:00          ISM Index
Wednesday-08:15     ADP Employment
Wednesday-10:00     ISM Services
Wednesday-10:30     Crude Inventories
Wednesday-14:00     Fed's Beige Book
Thursday-08:30         Initial Claims
Thursday-08:30         Continuing Claims
Thursday-10:00         Factory Orders
Thursday-10:00         Pending Home Sales
Friday-08:30             Employment Report