The Weekly Charts

What’s in stall?

The Weekly Report For March 17th – March 23rd

Commentary: After starting out the week slightly positive, most of the index ETFs, with the exception of the PowerShares QQQ ETF (Nasdaq:QQQ), have fallen off in the latter part of the week. The Nasdaq 100 index ETF has been the strongest of the indexes so far this year and is continuing to show relative strength compared to the other index ETFs. All the index ETFs remain in uptrends, although current prices are in close proximity to the upward trendlines on a few of the ETFs, indicating strength could be waning and if the trendlines break, a further correction is possible.

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S&P 500 SPDRS (ARCA:SPY) ETF is in a strong uptrend and currently near the middle of the upward trend channel it has been trading in for most of 2012. The price has been contained by the upper bound of the trend channel, and that is likely to continue to occur unless volume picks up, causing an acceleration of the trend. The upper bound of the trend channel intersects at $144 next Friday (March 30), indicating price should stay below that mark next week – but is a potential price target as well. The upward trendline that has been in effect since October currently crosses at $135.75. A drop below this level signals weakness, as it would be first time the trendline had been broken since October. Support is not too far below at $134.35, followed by major support at $130.

SEE: Trade Broken Trendlines Without Going Broke

Dow Jones Industrial Average SPDR (ARCA:DIA) ETF is currently sitting on its trendline, at $129.70. The trendline has not been broken on a closing basis since October, when it began, so a close below the trendline would signal some underlying weakness. Like the S&P 500 SPDRS ETF, support is not too far below at $127.18, followed by major support at $122.50. On the most recent rally, DIA was unable to reach the upper bound of the trend channel it has been trading in. For next week this means that if the DIA moves higher next week the likely target is the $133 region, with accelerations to the upside likely tuckering out at the upper band of the trend channel that intersects at $135.50 on March 30.

PowerShares QQQ ETF, representing the Nasdaq 100 index, remained strong this week. While it did not post impressive gains, it held its ground much better than the other index ETFs mentioned. The PowerShares QQQ has been relatively strong compared to the other index ETFs throughout the year and continues to be. The rather steep ascent the ETF has been on in 2012, with few pullbacks means, the trendline is also steep and always in close proximity to the current price. The trendline that began in December currently intersects at $65.50, with a drop below indicating potential short-term weakness. Support is below at $63.23 – the low of the only pullback we have seen in the ETF in 2012. Even if that trendline and support level are broken, the longer-term trend remains up. The trendline that began in October does not intersect until just below $60 – the primary support level.

SEE: Introduction To Technical Analysis Price Patterns

Russell 2000 iShares Index (ARCA:IWM) ETF, representing the Russell 2000 index, has struggled recently. $83.30 was significant resistance and on Monday IWM managed to close above it, but it was short-lived as the ETF is right back in the range it has been since early February. The trendline, in place since October, is fairly close to the current price, intersecting at $80.75. As with the other index ETFs a drop below their respective trendline is short-term bearish, although it is especially bearish for IWM since the ETF is already relatively weak. Being unable to make any forward progress for almost two months as the other ETFs have surged ahead is not a good sign. Support is between $78.41 and $77. IWM also is well below its 52-week high leaving more resistance overhead even if it can clear the sticky $83.30 level convincingly. This makes IWM the least attractive index ETF (of those mentioned here) to own at this time.

The Bottom Line
All the major index ETFs remain in uptrends, but there are differences between them. IWM is the weakest while QQQ remains the strongest. With a few of the ETFs close to trendlines IWM presents the most danger of breaking to the downside. All the other ETFs remain in strong uptrends and that should not be fought. Use trendline breaks as profit taking opportunities and pullbacks that hold above support as buying opportunities. Risk should always be properly managed no matter what the market outlook is.