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The Weekly Charts

April 1st, 2012 · No Comments

Still rising?

The major ETF indexes rose this week as the market continues to push higher. All the ETFs respected their trendlines over the week, showing stable price for the time being and no immediate warning signals. That said, the markets have been on a relatively steep rise this year with very few, and short-lived, pullbacks. The pleasant coast higher may be in for some jolts in the near future though, as first quarter earnings season kicks off next month. Therefore, some vigilance will be required as volatility, something which has been largely absent in equities throughout 2012 may start cropping up come April. The IPATH S&P 500 VIX Short-term (ARCA:VXX) ETF recently put in the lowest lows seen since inception and indicates there may be a bit too much confident in this smooth ride higher equities have been on. The trend remains up, and that should not be fought, but as we enter what is likely to be a more volatile time the support levels and trendlines of the ETFs mentioned below deserve attention going forward.

SEE: Volatility’s Impact On Market Returns

The S&P 500 SPDRS (ARCA:SPY) ETF remains in a strong trend channel higher and made a new 52-week high this week. The trend channel can be used to provide targets to the upside, and also likely areas of resistance. If the ETF continues to push higher next week (rise above $141.83), the target is $143 (near the middle of the channel). If a stronger surge higher is seen, $145 is likely to act as resistance as this is right near the upper band of the channel. Trendline support, going back to October, is just below $139, although the recent swing low at $138.55 can also be used. A drop below these levels indicates a further correction may be coming. Further support is at $134.36, penetration of which signals a test of primary support at $130. The MACD is leveling off and not confirming the recent rise. This has bearish implications but is a poor timing indicator.

Dow Jones Industrial Average SPDR (ARCA:DIA) While the ETF was positive this week it was slightly weaker than its S&P 500 SPDR counterpart relatively speaking. The last two weeks the ETF has been moving in a more sideways fashion. This sideways movement means the horizontal support levels should be watched for a potential breakout. If strength continues into next week (rise above $132.61) the target is between $135 and $136, with latter also likely to be a resistance area as this is the upper band of the trend channel. A drop below $129.71 is likely to result in a move lower with a target of $127.25. This is very close to the March low at $127.18, which if penetrated could trigger a test of primary support at $122.50. The MACD is also not confirming the rise in this ETF. The divergence has a bearish implication, but again, is a poor timing indicator.

SEE: Support & Resistance Basics

PowerShares QQQ ETF (Nasdaq:QQQ), representing the Nasdaq 100 index, created another 52-week high this week as the steep ascent continues. A rise above $68.51 means there is still upward momentum and provides a target of $69 to $69.50 for next week. On the other hand, given the steep ascent the ETF is always close to the trendline, which began in December, and a collection of daily lows are just above $66.30. Therefore, a drop below that mark means support between $65 and $64 is likely to be tested. There is also a swing low at $63.23, a drop below that points to a further correction into primary support between $60 and $59.50.

SEE: Index Investing

Russell 2000 iShares Index (ARCA:IWM) ETF, representing the Russell 2000 index, has been choppy since the start of February but did create a new high for 2012 this week. This ETF has been the weakest of amount the index ETFs addressed in the last couple months and continues to be sluggish. Strong divergence on the MACD warns of underlying weakness. Close to the trendline and a recent low at $81.25, a drop below that points signals a test of the range low at $78.41. It is unlikely a drop like that could be seen in the upcoming week, but a breach of that level has further bearish implications. The trend is up though, and sideways corrections in trends are common. A push above $85 means the advance is still in motion and the 52-week high at $86.81 is likely to be tested.

The Bottom Line
The trend remains up for all these index ETFs and as long as (respective) support levels hold this is a market to be long in. As we enter April though things could get more volatile as earnings season kicks off. Therefore, as always, risk should be managed and the downside calculated. The bearish divergence of the MACD is a signal that there may be some underlying weakness in the market. Use trendlines and support to warn of price declines, as these levels have kept traders long in the strongly rallying ETFs, and can also provide a way out.

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

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Tags: Technical Analysis