Weekly Technical Charts

Always interesting..

Commentary: The markets consolidated in an orderly fashion this week after an impressive two-week run. While some traders may fear an end to the recent rally, this week’s price action was actually quite constructive. The markets were able to digest some of their recent gains and gave back very little ground overall. All of the indexes remain above their October/November pivot highs and well above their prior breakout points. With volume likely to dwindle the next two weeks, traders may experience a few more days of dull price action.

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The S&P 500, as represented by the S&P 500 SPDRS (NYSE:SPY) ETF, has managed to remain above its November high, and finally had some help from the lagging financial sector. With the financials pitching in, SPY is now trading at new recovery highs and is approaching the area where the markets dove off a cliff back in 2008. This could be a significant area of resistance, so traders will need to be on guard as we approach the New Year. (For more, see Technical Analysis: Introduction.)

Source: StockCharts.com

The Powershares QQQ ETF (Nasdaq:QQQQ) remains in a position of strength and finished the week nearly unchanged. The strength in its leaders like Amazon.com(Nasdaq:AMZN) and Apple (Nasdaq:AAPL) has kept the pullbacks in QQQQ very shallow. QQQQ remains above a support level near $54, which coincides with its November high. Traders should look for buyers in this area on any weakness. If QQQQ loses this level, then $52 will be the next level to watch.

Source: StockCharts.com

The Diamonds Trust, Series 1 (NYSE:DIA) ETF actually managed to close positive for the week and is also close to testing a key high from 2008. The benefit of the doubt has to sit with the bulls at this point, as the markets continue to push higher. However, the next few weeks could see the markets pushing to the levels that preceded one of the worst market crashes in history. For DIA, the $118.73 level was an important high, and the whole $118 range should have traders on guard for the chance that DIA will trade there soon. If DIA can eventually clear this level it could bring more investors back from the sidelines. 

Source: StockCharts.com

One positive for the markets that is showing an underlying strength is the recent price action in the iShares Russell 2000 Index (NYSE:IWM) ETF. IWM also closed the week higher and is now above the same important resistance levels SPY and DIA are facing. IWM reversed from the $76 mark a couple of times in 2008 before crashing along with the markets. These highs in the markets are important from a psychological perspective as many investors and traders finally have their 401(k) and retirement accounts back at pre-crash levels. Because it’s human nature to want to get out at breakeven, traders should realize the importance of these levels. The fact that IWM is above this level is a positive and shows that market participants are being more aggressive.

Source: StockCharts.com

The Bottom Line
The past three weeks have now seen a surge in the markets followed by a quiet consolidation. Historically, the end of the year has been positive for the markets and the typical year-end rally has even coined the term Santa Claus rally. The markets continue to show underlying strength and many individual stocks remain in a strong position. While the near-term picture still looks very strong, traders should be cognizant of the significant resistance levels that SPY and DIA have yet to face. If there was a single level that would bring in sellers, it would be where SPY failed in 2008 near $143.55. Traders should watch this key area as we head into the next year. (For related reading, see Santa Claus Endorsement Deals.) 

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