Some consolidation of gains are in order, or?

Commentary: After a shaky start to the week and the biggest single day drop so far this year on Tuesday, markets recovered the rest of the week. Markets continue to move forward in a strong uptrend. Even IWM, which was so weak last week, picked up steam and respected it’s trendline. Most of the major indexes remain in the vicinity of recent 52-week highs signaling further advances for the short-term but there is longer term resistance at levels not too far above current ones. (For related reading, see Introduction To Technical Analysis Price Patterns.)

S&P 500 SPDRS (NYSE:SPY) ETF, representing the S&P 500 index, is still signaling a strong advance. Having recovered nicely for the drop earlier in the week SPY managed to claw back losses and continues to trade in the vicinity of the 52-week high seen last week. The drop on Tuesday stopped just above the longer-term trendline which has been in place since October. The recent test and successful support validates the trendline and makes it a good long-term and short-term signal of a potential reversal (and support point on declines). The trendline is currently crossing at $133.30, with a drop below signaling a likely to end to the upward movement (Tuesday’s low at $134.36 can also be used a stop level or warning signal level). Currently the trend is still up and break and hold above the recent 52-week high at $138.19 suggests an advance to $141. Between $140 and $144 is a strong long-term resistance area.

DJ Industrial Average (NYSE:DIA) ETF is in a similar position to SPY. Tuesday’s decline tested the trendline validating it on the shorter and longer-term. The trendline currently intersects at $127.80, although the low on Tuesday at $127.18 provides a better signal of potential of danger–a drop below that level jeopardizes the uptrend and suggests further declines. The trend is up and a rise and hold above last week’s fresh 52-week high at $130.37 signals an advance to $133. DIA is already trading within the long-term resistance band, which extends all the way up to $141.95. (For additional reading, see The Utility Of Trendlines.)

PowerShares QQQ (Nasdaq:QQQ) ETF, representing the Nasdaq 100 index, continues to be on fire, putting in a new 52-week high on Friday. The pullback Tuesday allows us to redraw a trendline starting in December, which will provide an early signal of a potential reversal. The trendline currently intersects just under $64 although the Tuesday low at $63.23 can also be used as a stop level/support level. A drop below these levels means the ETF is losing steam and a further decline becomes highly likely–especially a drop below $63.23. Significant support is at $60. In terms of upside targets, the $66 target remains in effect from last week, with an additional target of $67.50 (will likely take a couple weeks or more to hit if trend continues higher).

Russell 2000 iShares (NYSE:IWM) ETF, representing the Russell 2000 index, had an aggressive rally to end the week after breaking lower last week. The sell-off early in the week tested the upward sloping trendline which has been in place since October and the trendline held. Throughout February the ETF was range bound, struggling to get above $83.31 (high of the range). With the trendline holding the ETF may have enough momentum to carry through that level now. If that upside breakout occurs the target is $85.50 followed by $86 and then the 52-week high at $86.61. On the other hand, a drop below Tuesday’s low at $78.41 is likely to trigger selling into support at $75.

All the major index ETFs remain in uptrend mode and top picking is not recommended. The recent respect of trendlines means there is likely more upside to come as the selling was met with buying interest. A couple of the ETFs are in, or approaching, longer-term resistance areas which means trendlines and support should be monitored for potential signs of a reversal.