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The Weekly Charts

November 6th, 2011 · No Comments

What do they say?

Commentary: Many market participants that missed the strong rally off the October lows have been patiently waiting for the markets to pullback a little, and this week offered the first true dip since the bounce began. We mentioned last week that the market was due to take a breather, but the mid week reversal the markets experienced was pretty sharp, and occurred on the backdrop of renewed issues with Greece . It is hard to actually buy a dip, especially when it occurs so swiftly and sharply. However, the mid-week drop did end up becoming a buying opportunity and the markets ended up finding support at prior resistance areas. This weeks lows are now a key area to watch in case the markets come back to test for support again.

The S&P 500 as represented by the S&P 500 SPDRS (NYSE:SPY) ETF kicked off the week with a gap lower that turned into a landslide. By Tuesday, SPY had given back most of the gains from the prior two weeks. While the pullback was very sudden, SPY did find support near prior resistance near $122. The markets will rarely serve up trades on a silver platter, and this week was no different. Now that SPY found support near a key level, that level becomes an important area to monitor. It is possible that the markets will come back for a retest of support near $122 in the coming week and traders should keep a close eye on the level. A close under this level could imply a move down towards $120.

The Diamonds Trust, Series 1 (NYSE:DIA) ETF also pulled back towards prior resistance this week near $116. While the 200-day moving average near $118 has been an important area to watch, the $116 area was the level that attracted buyers. This now becomes a key area to monitor moving forward, as this low should offer support. It may take more time consolidating, but DIA appears to have found a near term bottom.

The Nasdaq 100 as represented the Powershares QQQ ETF (Nasdaq:QQQ) ETF continues to basically consolidate under key resistance near $59. While there has certainly been an increase in volatility over the past few weeks, QQQ has not given up much ground overall. This is a positive, and QQQ remains one of the key indicators for the health of the markets. Any strength that carries QQQ over $59 would be worth acting on, as it could signal a key breakout. Looking below, the $56 level has held as support on a few occasions, and QQQ should remain above this level in a benign environment.

The small caps may finally be shaping up. The group as represented by the iShares Russell 2000 Index (NYSE:IWM) ETF has been lagging all summer, but finally showed some strength last week. This week, IWM held near key support along with the other market index ETF’s and also rebounded along with its peers. The lack of underperformance is a positive sign and IWM is worth watching to see how it acts in the coming days. Any strength that carries it above $77.50 could gain momentum and could lead to much higher prices.


The Bottom Line

The pullback in the market indexes this week was certainly not an easy trade to take. However, many individual stocks held up much better than the indexes, and did provide reasonable entries. We mentioned a few stocks that remained near all time highs earlier this week in an article on buying pullbacks. It was certainly not a given that the markets would stabilize near support, but once some individual stocks started showing strength, it spilled over into the general markets. The key question is whether the markets will head higher from here, or top out. Of course I don’t know the answer, but we’ve mentioned the past few weeks that market sentiment has shifted towards buying weakness. This is in stark contrast with a couple of months ago when the markets could not hold on to any gains for more than a day and a half. Until this behavior changes, the likelihood remains that the markets will continue to see higher prices.

Charts courtesy of

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.



Tags: Technical Analysis