The Weekly Charts

What do they say?

Commentary: The stock market continued to climb a wall of worry most of the week as investors gradually overcame fears of slowing economic growth in the United States and sovereign debt default in Europe. This positive news was crushed on Friday after a weak jobs report dashed the optimism of most investors.

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The market was closed on Monday due to the July 4 holiday and then treaded water on Tuesday and Wednesday as investors looked to the all important payroll jobs report later in the week. On Thursday, the stock market gapped up as positive economic news hit the tape, increasing investor’s expectations for the Friday non-farm payroll report. The hopeful trend was shattered by investor panic on Friday when it was reported that non-farm payrolls in the United States increased by only 18,000 in June, much less than what the market was expecting.

The S&P 500 as represented by the S&P 500 SPDRS (NYSE:SPY) spent the shortened week continuing its bounce off the 200 moving average near $126 per share. This trend began last week as investors spotted bargains in the market and concerns eased over various crises in the United States and abroad. 

This higher trend was helped by market action on Thursday, when the S&P 500 SPDRS gapped up and opened nearly 1% higher, powered by a report from ADP (NYSE:ADP) that U.S. private sector employers added 157,000 jobs in June 2011 – twice the amount expected by most economists. The market also responded well to positive news on sales from a number of important retailers.

The disastrous Friday payroll report may push the S&P 500 SPDRS to break through the weekly low and 50-day moving average near $133 per share and then retest the 200-day moving average of $126 per share. (For more, see The Anatomy Of Trading Breakouts.)

Powershares QQQ ETF
The technology-saturated Nasdaq 100 index, as reflected in the Powershares QQQ ETF (Nasdaq:QQQ), has seen the most upside over the last two weeks, moving 11% higher over the last eight trading days before Friday’s debacle. The Powershares QQQ ETF hit a multiple top in the $59 per share range and now looks likely to drift down to its 50 day moving average of $56.88 per share. (For more on the QQQ, see Trading the QQQ With In-The Money Put Spreads.)

Investors should also keep an eye on broader-based and smaller-capitalization indexes as a break down here would imply a more bearish sentiment in the market. 

Russell 2000 Growth iShares
The iShares Russell 2000 Growth Index (NYSE:IWO), which captures the performance of small capitalization growth stocks in that index, had performed quite well prior to Friday’s trading. This ETF reached a high of $98.94 per share during the week and nearly broke out above the two-year high of $99.29 per share achieved in May 2011. 

The Russell 2000 Growth iShares may now see a more rapid fall and test the 50-day moving average near $93.57 as investors move to protect gains achieved over the last few weeks.

Russell 2000 Value iShares
The Russell 2000 Value iShares (NYSE:IWN) is the mirror image of the Russell 2000 Growth iShares and reflects the small capitalization members of the index that are considered to be in the value camp. This ETF didn’t get as much of a lift as its sister ETF but still bounced nicely off the June lows. The 50-day moving average for the Russell 2000 Value iShares is near $72.67 per share, about $3 below where it ended the week. (For related reading, also see Create Your Own Trading Strategies.)

There is no sugar coating the fact that the markets closed weakly once again. Sellers have been in control for weeks now, and every positive day has been met with selling. However, there are some signs of life in the markets here. The recent volume spike and intraday reversals are hinting at some possible buyers stepping in. Also, several stocks have held up well, and are presenting possible opportunities. There is no doubt that the markets are still vulnerable, but as they continue to get more oversold, it sets the stage for a counter trend rally. While it may still be a long summer, the markets typically don’t travel in a straight line to either direction. (For related reading, also see Keep It Simple – Trade With The Trend .)

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