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Weekly technical analysis

October 26th, 2009 · No Comments

What do the charts say?

Commentary: The best analogy I can think of for the markets this week is that they have been sprinting on a treadmill. There were some volatile moves back and forth, but in the end, the markets ended up going nowhere. There were some large moves higher in individual stocks such as Amazon.com (Nasdaq:AMZN) and Apple(Nasdaq:AAPL), but it wasn’t enough to swing the indexes into the positive column for the week. The promising breakouts from last week have basically stalled, although most of the indexes remain above their breakout areas.

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The chart for the S&P 500, as represented by the S&P 500 SPDRS (NYSE:SPY) ETF, shows how despite the past three candles alternating in big swings, SPY basically ran in place from Wednesday through Friday. SPY is at a critical area, wedged underneath the past two weeks’ worth of trading and the prior base. A move lower would signal a possible failed breakout, but technically it is sitting at support and above rising 20- and 50-day moving averages. The critical level to watch for a larger reversal remains the September low near $102. (For related reading, check out Trading Failed Breaks.)

Source: StockCharts.com


The Diamonds Trust Series 1 (NYSE:DIA) ETF, which tracks the Dow Jones Industrial Average, held up a little better than SPY, likely because of earnings-related movement in one of its component stocks. Because the Dow Jones Industrial Average only tracks 30 stocks, it is more susceptible to the movements of an individual component stock. DIA certainly has shown some weakness over the past few days, but much like SPY, it remains above support and rising 20- and 50-day moving averages.

Source: StockCharts.com


The iShares Russell 2000 Index (NYSE:IWM) ETF continues to show relative weakness to its peers. IWM never cleared its recent base, and closed below its 20-day moving average this week. While it is still technically in a range-bound consolidation, it is a bearish sign if this index is acting poorly compared to its peers. Typically, weakness in the more volatile stocks shows that traders are averse to risk taking, and can be a subtle clue that the appetite for buying stocks is slowing down. The September lows are a critical area to watch, as a failure could lead other groups to follow suit.

Source: StockCharts.com


The Powershares QQQ ETF (Nasdaq:QQQQ) benefited from AAPL’s post-earnings move, as it was able eke out a small gain for the week. The technical picture for QQQQ is much the same as it is for SPY and DIA. The ETF remains above rising 20- and 50-day moving averages, and above its recent base. QQQQ has shown clear support near $42.50-$42.75; it will be interesting to see if this level holds once again.

Source: StockCharts.com


Bottom Line
There are some clear signals of weakness appearing in the markets, but as of yet there is still not a valid reversal signal. The market remains above prior support and in a near-term lateral range. This coming week should offer additional clues. If the indexes fail their breakouts, they could be in for a more prolonged consolidation or lateral trading range. The key level on the downside remains the September lows; if these are breached, it could signal a more protracted correction.

Tags: Technical Analysis