It has been a good week, another one coming?

The markets continue to punish shorts as they easily sliced through some resistance levels. Market participants continue to shrug off bad news, and many indexes are close to testing their January highs. In fact, the smallcaps have taken the lead as the Russell 2000 has already traded to new highs. Many stocks have been acting well and sectors such as consumer discretionary have been leading the charge. It is a sign of health when leadership comes from riskier asset classes, and the markets are acting like the consumer is back on track.

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We will lead off this week with a chart of the iShares Russell 2000 Index (NYSE:IWM) ETF. The small cap stocks have been on a tear, and IWM has bounced from the February lows to surge past the January top. The big question is whether the rest of the market indexes will follow them higher. IWM cleared an important level near $62 in February, and after resting for a week followed through with the breakout. The $65 level will be important to watch moving forward as a pullback to this level could bring in buyers that missed the initial move.

The S&P500 as represented by the S&P 500 SPDRS (NYSE:SPY) ETF has also rallied sharply off the February lows. Overall though, unlike IWM, SPY remains in a larger trading range framed by the January highs and February lows. One positive development is that SPY was able to clear a resistance level marked by the mid February high this week. This follows the pattern IWM took and bodes well for a test of the January highs near $115. This would be the level to watch to see if sellers begin to emerge again.

The Diamonds Trust, Series 1 (NYSE:DIA) ETF continues to lag the other indexes, which isn’t necessarily a negative. The Dow is composed of mostly slower moving large caps, and would naturally under perform in strongly up trending markets. Much like SPY, DIA was able to clear a resistance level marked by the mid February high this week. Volume has been relatively in this rally attempt, so it might be showing a lack of conviction, but the price action remains healthy. It appears that a test of the $107 level is forthcoming and that remains the key area to watch. The $104 level is an important area to watch for support, now that DIA was able to clear it as resistance.

The Powershares QQQ ETF (Nasdaq:QQQQ) came very close to testing its January high on Friday. Large cap tech stocks performed well for the week, led by Apple, Inc. (Nasdaq:AAPL) which was able to trade to new highs. A test of the January highs looks inevitable for QQQQ at this point, and it will be interesting to see if the Bulls have enough strength to pull away from this level. The $45 level would remain an area to watch for support on a pullback.

Bottom Line
While the majority of the indexes remain in a trading range, the recent action has been bullish. The markets have shrugged off negative news and were able to overcome some resistance levels fairly easily. The one sticking point that could be an early warning signal has been the lackluster volume on the move higher. While volume isn’t absolutely necessary, it doesn’t bode well if market participants are shying away from rising prices. It’s possible that next week will bring a test of very important levels for QQQQ, DIA and SPY, and it will be a warning signal if sellers step in on increasing volume overwhelming the light buying volume. The markets have had a sharp move in a short period so it’s very possible that they will pause or pullback from these levels. Traders need to be cautious and wait for the markets to prove themselves at these levels. Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!