Weekly technical analysis

What do the charts say..

Commentary: The general markets succumbed to a little selling pressure this week, although the pullback was very orderly and respected support levels. Options expiration and a Federal Reserve meeting kept traders on their toes this week, with most of the weakness coming after the Fed statement. While the net result for most of the indexes was a loss for the week, on a grander scale, the markets remain range-bound. That said, they are getting closer to resolving the current pattern and should offer a good trading opportunity soon.

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The S&P 500, as represented by the S&P 500 SPDRS (NYSE:SPY) ETF, has continued to consolidate the late October run up and has refused to give up much ground. While its recent attempts to clear resistance have failed, the fact that SPY is not retracing deeper is bullish. This sideways range has been expected, with the emotional low put into place in late November, and the stiff resistance overhead. Both of these levels continue to be the lines in the sand for both bulls and bears to watch.

The preceding paragraph was written for last week’s review; notice that despite the loss this week, the story remains the same. In addition, the consolidation is starting to take the shape of an ascending triangle, which often resolves in the same direction as the prior trend.

Source: StockCharts.com

The Diamonds Trust, Series 1 (NYSE:DIA) ETF is taking a similar shape to SPY. DIA has also been finding support on any trip to the 50-day moving average over the past several months. DIA is trading a very tight range, with buyers starting to get aggressive in the $102 area. The $105 level remains a key area to watch moving forward on the upside.

Source: StockCharts.com

The small caps, as represented the iShares Russell 2000 Index (NYSE:IWM) ETF, are starting to get interesting. After lagging for several weeks, IWM is starting to show some strength. Last week it was able to close all five days above its 20- and 50-day moving averages for the first time in weeks; this week it actually showed a gain for the week as the other indexes finished in the red. While overall the intermediate pattern is not as strong as the other indexes, the near term strength is showing promise. Also, this time of year is seasonally bullish for the group.

Source: StockCharts.com

The Powershares QQQ ETF (Nasdaq:QQQQ) ended the week slight lower. QQQQ has been finding buyers at progressively higher levels over the past three weeks, and remains coiled in a tight range. The level to watch for this ETF is just under $45. Sellers continue to step in at these levels and rebuff breakout attempts. It will be interesting to see if this year’s window dressing period, combined with relative outperformance from this group all year, combines to lift the sector to new highs.

Source: StockCharts.com

Bottom Line
Stepping back, the markets are neutral in the near term, but overall they remain in an intermediate term uptrend. Volume has been tapering off as we approach the holidays, and should be light through the end of the year. The next few weeks could get interesting though, as market ETFs continue to build on their consolidations and get closer to a resolution. The key levels to watch remain clearly defined. This is where traders should be focusing their attention.

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