The Weekly Charts

Still more upside?

Commentary: It was another good week for equity markets. Tuesday was largely responsible for the gains this week with all the major index ETFs tacking on well over 1% on that day. The major index ETFs, addressed in detail below, remain in strong uptrends creating new 52-week highs this week. The exception is iShares Russell 2000 index (ARCA:IWM), which had a positive week but remains well off the 52-week and continues to be more range-bound than trending. Overall volume continues to be an issue. While ETF volume is fairly steady from day to day, there appears to be much less retail volume coming into equities as a whole, even though the Nasdaq 100 ETF PowerShares QQQ (Nasdaq:QQQ), for example, is up roughly 19% so far this year. Markets can rise for a long time on anemic volume, but eventually the retail investors need to get involved in order to keep prices moving. So far this does not seem to be happening and this is a warning sign for the longer-term picture if volume does not pick up.

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S&P 500 SPDRS (ARCA:SPY) ETF remains in a strong uptrend, putting in a new 52-week high this week. The upward sloping trendline that began back in October is currently crossing at $135, with a drop below signaling a likely end to the upward movement (last Tuesday’s low at $134.36 can also be used a stop level or warning signal level) for the time being. As long as the price remains above that trendline the uptrend remains healthy and pullbacks can be used as buying opportunities, ideally waiting for prices to begin moving higher again as opposed to buying as prices drop. Between $140 and $144 is a strong long-term resistance area. SPY has been moving higher within a trend channel and for the most part has crept along the upper line of that channel. If that tendency continues next week, the price projection is around $143.

Dow Jones Industrial Average SPDR (ARCA:DIA) ETF is in a similar position to SPY. The ETF is in a strong uptrend and made a new 52-week high on Friday. The trendline that began back in October currently intersects at $128.75, although the low on March 6 at $127.18 provides a better signal of potential of danger – a drop below that level jeopardizes the uptrend and suggests further declines. If the ETF continues to rise, the next target is roughly $144.50. This is the upper band of a wedge formation DIA has been moving within since December. Current DIA is in a resistance zone that extends all the way up to $141.95.

SEE: Analyzing Chart Patterns: The Wedge

PowerShares QQQ ETF, representing the Nasdaq 100 index, has been in a very aggressive uptrend, and also put in a fresh 52-week high this week. The trendline to focus on in QQQ is the one that began in December and crosses under the March low. This trendline currently intersects at $64.75, although the March 6 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 from last week was hit during trading week, which still leave us with the next target at around $67.50.

Russell 2000 iShares ETF, representing the Russell 2000 index, was range bound throughout February, struggling to get above $83.31 (high of the range). If that upside breakout occurs, the target is approximately $85.50 followed by $86 and then the 52-week high at $86.61. On the other hand, a drop below March 6’s low at $78.41 is likely to trigger selling into support at $75. The trendline that began in October is also intersecting at $80. A drop below that level is also a signal of weakness and a likely test of the March 6 low. Last week we saw that ETF make a move to the downside and then recover at the end of last week. This week again, though, IWM spent much of the time flat while the other indexes advanced. An upside breakout, if it materializes, is likely to move quick. That said, recently it has been weak compared to the other index ETFs, being unable to advance since early February.

SEE: The Anatomy Of Trading Breakouts

The Bottom Line
All the major index ETFs remain in uptrend mode and top picking is not recommended. Trendlines and support should be monitored for potential signs of a reversal, for as indicated at the start, volume is rather anemic. This is not a ‘sell’ signal, as prices can rise for a long time without an increase in volume, but if no other participants enter the markets, it becomes harder and harder for the price to rise, and a drop eventually occurs. Also, DIA and SPY are in strong resistance areas and IWM is not confirming the other indexes’ advances at this time.

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At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.

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