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The Weekly Charts

July 15th, 2012 · No Comments

Rebound continuing?

With little strength exhibited throughout the start of the week, the trading day which dominated the week was Tuesday, July 10. Having opened higher, the indexes then fell more than 1% on Tuesday. The overall weakness seen on most days this week brings the indexes closer to their respective support levels. If those levels are broken, it indicates broad weakness is likely to materialize in these index ETFs. Yet, this is still a short-term uptrend. As long as prices remain above support, a push back towards recent highs keeps the possibility of a further rally alive.

SEE:Support & Resistance Basics

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The S&P 500 SPDR ETF (ARCA:SPY) has support at $130.85–the June 25 low. If that level is breached it signals a further overall decline in the index. The next downside target is a major low set on June 4 at $127.14.If that level cannot hold off selling in future weeks, another wave lower in the ETF will be confirmed. While a bounce may occur, if support is broken, those bounces are unlikely to reach the recent rally high at $137.51, set on July 3. The 52-week high of $142.21 is therefore also unlikely to be challenged any time soon if the ETF moves below $130.85. On the other hand, as long the ETF stays above support, there is hope of a further rise for the bulls. Through June and into early July the ETF was making higher highs, and higher price lows–a short-term uptrend. That trend could continue. If the ETF can rally above $137.51, the next target is $139.75.

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The Dow Jones Industrial Average SPDR (ARCA:DIA) is in close proximity to support at $124. Through the last week of June, the $124 level managed to hold off further selling and the ETF eventually moved higher. Therefore, a drop back below this level is bearish and signals a re-test of primary support at $120.19–the June 4 low. Since the start of the ETF’s decline beginning in May, $120.19 is a pivotal level. If the price moves below that level it will be a confirmation that the next wave lower in the downtrend has already begun. If the ETF can stay above $124 and $120, then the short-term uptrend is still intact, and a continued rise is possible. The July 5 high at $129.41 needs to be broken in order to keep the rally alive. If that occurs, the 52-week high is at $133.14 and within striking distance.

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PowerShares QQQ ETF (Nasdaq:QQQ), representing the Nasdaq 100 index, broke above $64.57, the June 20 high, on July 3, signaling a move to $66. Strong selling on July 6 dropped the price back to well below the breakout point, meaning $66 is unlikely to be tested for some time. Minor support is below at $63. The next level to watch is $61.54, the June 28 low. A drop below $61.50 could trigger selling into support. Support is at $60 followed by $59. The $59 mark is important because it was a resistance area back in October and November, and should now support declines. If it does not, it is a longer-term bearish signal. The next target would be at $56, should $59 be breached in the coming week(s). On-balance volume shows the same long-term bearish divergence as the other ETFs, indicating that a new 52-week high anytime soon is highly unlikely under current conditions.

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Russell 2000 iShares Index (ARCA:IWM) ETF, representing the Russell 2000 index, has been one of the stronger index ETFs in recent weeks, a stark contrast to the relatively weak performance it put forth in February and March as the other indexes advanced. The ETF has managed to the stay away from support levels, despite selling through much of the week. Support is $75.42 to $74.78, created by a series of daily lows throughout June. Primary support is just beyond at $72.94–the June 4 low. If penetrated the next downside target is $71, followed shortly by $70.50, which is right in the vicinity of the long-term upward trendline going back to 2009. More upside could develop in this ETF though. In order for that to materialize though, the support levels can’t be broken. Additionally, the price will need to rally above the July 5 high at $81.84. Resistance beyond is at $83 and the 52-week high at $84.66.

SEE: The Utility Of Trendlines

Bottom Line:
As the ETFs trade between a recent high and recent low, the bearish longer-term outlook is clashing with the shorter-term outlook. Right now there is a short-term uptrend, and that will continue as long as support levels  holdand the index ETFs can rally to exceed recent highs. Support is close at hand though, and a drop below signals this rally is likely over and another wave lower in the longer-term downtrend is continuing. False breakouts do occur, so even though these technical levels are important, always control risk, paying attention to the trend on multiple time frames.

SEE: The Anatomy Of Trading Breakouts
Charts courtesy of stockcharts.com

Tags: Technical Analysis