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Weekly charts

November 16th, 2009 · No Comments

What do they say…

Commentary: The bulls managed to add their the impressive rally, while the U.S. dollar continues to struggle. This story seems to be the dominant theme for the past several months, but many investors are wondering how much longer it will continue.

The chart for the S&P 500, as represented by the S&P 500 SPDRS (NYSE:SPY) ETF, is trading near the same level where it peaked in late October. As you can see from the chart below, there are definite bullish and bearish cases to be made given the position of the index; the best bet may be to wait a few more days to see if the price is able to close above the high that was created in October. Bearish traders will likely be pointing to the development of a possible double top pattern, which could be used to suggest that the rally is running out of steam. Two critical areas to watch here are for a close above the October highs or a retest of the support of the nearby 50-day moving average.

Source: MetaStock

The Diamonds Trust Series 1 (NYSE:DIA) ETF has bounced nicely off the support of its 50-day moving average and continues to make higher highs. Many traders will maintain their bullish stance on the market until the bears are able to send the price below the 50-day moving average for several consecutive days.

Source: MetaStock

Despite the broad market strength, the iShares Russell 2000 Index (NYSE:IWM) ETF continues to look relatively unhealthy. IWM set a lower low last week, and couldn’t muster enough strength to move above its October high like its larger-cap counterparts. At this point, the 200-day moving average is within striking range and could suggest that the recent weakness could continue.

Source: MetaStock

The Powershares QQQ ETF (Nasdaq:QQQQ) had another strong week as traders sent the price above the October high. The 50-day moving average seems to be acting as a very strong level of support and will be used by traders to suggest that the rally should continue. Traders will keep a close eye on this index to see if the bulls will be able to keep the price from falling below the newly-formed support level (dotted line).

Source: MetaStock

Bottom Line
The action this week clearly shows the conviction of the bulls and the strength of the market rally. It will be interesting to see if the bulls can continue to send prices higher in the coming week. The small caps are still underperforming their larger counterparts, but in general the pressure still seems to be to the upside. As a trader, one of the most important traits is learning when to tone it down and step aside until better risk versus reward opportunities arise. It looks like we could still be experiencing one of those times.

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Tags: Technical Analysis