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Weekly Technical Charts

October 25th, 2010 · No Comments

Rally continuing?

The markets basically ended where they began this week, as Tuesday’s gap down was easily absorbed by the bulls. The markets have trended sideways for the past couple of weeks, and while there have been some signs of distribution, they remain above recent resistance levels. This week’s low has created a short-term level to watch for market participants, which, if lost, could signal a deeper pullback. When combined with recent highs, it is clear that a tight range is being formed; once the markets break to either side of this range, it could make for a great trading opportunity.

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With several high-profile tech companies reporting earnings this week it was a little surprising that the tech group, as represented by the Powershares QQQ ETF (Nasdaq:QQQQ), ended almost exactly where it started. While not much upside progress was made, bulls have to be comforted by the fact that QQQQ has not given up any ground recently. The gap down in Apple (Nasdaq:AAPL) was fairly well contained, and other components like Baidu (Nasdaq:BIDU) and (Nasdaq:AMZN) reacted well to their earnings reports. QQQQ remains above the recent resistance area near $50, which should now become support. A drop below this level would put the $49 level in play, so bulls should monitor this week’s low.


The S&P 500, as represented by the S&P 500 SPDRS (NYSE:SPY) ETF, has yet to confirm the recent strength in QQQQ by rallying above its April highs. However, SPY was able to hold above some important resistance levels near $112 and $115. The financial sector has been lagging through this entire move, which has held back SPY. If the financials can gain some momentum soon, it could help push this ETF through to new highs. In the near term, traders should monitor the recent congestion near $114-$115 for possible support on weakness.


The Diamonds Trust, Series 1 (NYSE:DIA) ETF, which tracks the Dow Jones Industrial Average, continued to flirt with its April highs without actually clearing them. Despite some recent distribution days, DIA has managed to absorb most selling and remains poised just under important resistance near $112.50. This week’s low serves as an important area to watch as well; a drop below it may be a sign of a deeper pullback.


The iShares Russell 2000 Index (NYSE:IWM) continued to lag the markets. IWM remains well off its April highs, but much like the other index ETFs, it has managed to hold above recent resistance levels. The recent breakout above $67 appears to be valid, and IWM should find support near this area on any weakness. The clear area to watch above is near $74, which coincides with IWM’s April highs.


Bottom Line
In the end, it was a very tame week as there was very little overall movement in the indexes. Tuesday’s gap down was easily absorbed, and the markets are basically consolidating. In essence, traders should be prepared for two scenarios. The first is a continuation move higher after this pause, which could take the other indexes to new highs. The other is a deeper pullback from this consolidation, which of course could turn into more. A drop below this week’s low would serve as a warning sign that the current pause could turn into a pullback. Traders should remain cautious, as bullish sentiment is starting to increase to levels that have been associated with reversals.

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Tags: Technical Analysis