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The weekly technical analysis

August 1st, 2010 · No Comments

What do the charts say?
Commentary: The markets have basically spent the week pausing near their June highs. In fact, the markets are basically near where they closed last week after a strong Monday and three days of selling, and are pulling back from a well-established resistance area. However, while the pullback looks constructive so far, traders need to be on alert for a failure here. Ultimately, all eyes are on the pivot lows set last week and the June highs above.

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The two levels are pretty clear in the chart for the S&P 500, as represented by the S&P 500 SPDRS (NYSE:SPY) ETF. Notice how SPY is backing away from the $112 area, which coincides with SPY’s June high. This will be the key level to watch in the near future, as a move above this level will likely catch some bears off guard. Looking below, the first level of possible support would likely lie near $108. This is the current location for SPY’s 20- and 50-day moving averages. However, the key level to watch is the pivot low set near $106. A failure here could lead to a retest of the July lows and call into question the idea that a higher low has been set at all.


The Diamonds Trust, Series 1 (NYSE:DIA) ETF, which tracks the Dow Jones Industrial Average, also backed away from its June high near $106. This is the key level to watch above, as a move above this area will confirm a higher high. The key question traders are facing is whether DIA is resting before an attempted breakout, or is in the early stages of resuming its downtrend. While there are a few levels of possible support below, the key level to watch is near $100. A break below this level may have some bulls scrambling for the exits.


It’s interesting that the Nasdaq, as represented by the Powershares QQQ ETF (Nasdaq:QQQQ), failed to even reach its June high. In healthy markets, typically the Nasdaq would be outperforming as it would show investors being more aggressive in seeking better returns. If the markets are going to attempt a move higher, QQQQ will have to start leading the way. The first step would be clearing this week’s high, but much like the other ETFs, the June high is the key level to watch above, while $44 is the level to watch below.


The Russell 2000, as represented by the iShares Russell 2000 Index (NYSE:IWM), also failed to reach its June high, although it did come fairly close. Much like QQQQ, IWM will need to resume its role as a leader if the market’s rally attempt is to continue. IWM is trading just above a cluster of its 20-, 50-, and 200-day moving averages, which could provide near-term support. Ultimately though, IWM is trading between the same two key levels as the other market index ETFs. For IWM, these levels would be $67.50 and $60.


Bottom Line
Despite the fact that the market index ETFs are beginning to back away from resistance near the June highs, not much has changed in the grand scheme of things. The markets remain in a small consolidation after last week’s strong rally and they have plenty of room before the pullback will be a threat to last week’s pivot low. Heading into Friday, it looks like the markets still have more consolidation ahead and it may take a few days before a resolution appears. However, traders should be on high alert as the markets could be setting up for a good move soon. If the markets clear their June highs, it could lead to a surge higher; if they break under last week’s lows it could lead to a quick plunge. Either way, a trend move should be near.

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Tags: Technical Analysis