The Weekly Charts

Consolidation continuing?

The Weekly Report For April 9th – April 13th

Markets failed to make back losses from last week, with the fall on Tuesday creating the largest overall decline seen since December. For some indices this meant almost nothing as they continue to create higher highs and higher lows. For others other it meant support levels were breached, drawing the uptrend into question.

SEE: Support And Resistance Reversals

The S&P 500 SPDRS (ARCA:SPY) ETF continues to move in an uptrend. On April 2 a new 52-week high was created at $142.21 and the recent decline stopped short of the March 6 low. A drop below the March 6 low at $134.36 draws the uptrend into question and indicates potential further weakness. Major support is at $129 to $127.50. On the other hand, a push back higher is bullish and if the 52-week is surpassed the target is roughly $144. With a weekly average movement of $2.92 reaching the 52-week high again next week is unlikely, although support is within reach.

The Dow Jones Industrial Average SPDR (ARCA:DIA) uptrend has been drawn into question this week. On April 10 the ETF dropped to a low of $126.92, piercing the March 6 low. This has bearish implications, although currently the ETF is trading above that mark. Major support is not until $123 to $122. A push higher is positive and means the downside break may have been false, but it could also mean that ETF is simply in an expanding range–a tough environment to trade in. A rise back above the 52-week high at $132.68 is unlikely next week as the weekly average movement is $2.49.

PowerShares QQQ ETF (Nasdaq:QQQ), representing the Nasdaq 100 index has been strong and continues to be relatively strong. Despite a recent decline the ETF remains in a strong uptrend creating higher highs and higher lows overall. Short-term support has developed near $66, beginning in the middle of March. The lowest price seen since then is $65.92 (April 10). A drop below that price has short-term bearish implications, but support comes in between $65 and $63.23 (March 6 low). A push back above the 52-week high at $68.55 signals an advance to around $70, although reaching the 52-week high next week is unlikely as the weekly average range is $1.58. Overall the trend appears healthy, but a drop below $66 should be watched for early signs of weakness.

SEE: The Utility Of Trendlines

Russell 2000 iShares Index (ARCA:IWM) ETF, representing the Russell 2000 index, has been the weakest of the index ETFs over the last couple months. Like DIA, IWM created a swing high recently (March 27) at $84.66 but also created a new swing low at $78.14 (April 10). The recent low has bearish implications, but could also simply indicate that the ETF is continuing to trade within an expanding range since early February. From a broader perspective, given the ETF’s inability to advance over the last couple months as the other indices moved ahead, sheds a bearish bias on the overall outlook of the Russell 2000. There is a support range below between $77 and $75 based off the choppy trading seen in October through December of 2011.

The Bottom Line
While the outlooks of the individual ETFs vary, how they relate to each other provides some additional insight. While QQQ and SPY remain in uptrends, the trend in DIA has been drawn into question and IWM has been weak for months relative to the other indices. This non-confirmation of the ETFs is not a timing signal–after all IWM has been relatively weak for months–but it is a legitimate cause for caution. With two of the major indices breaking support (even if temporarily) it shows a weakening of the overall market and could pull the stronger indices down with it. That said, if SPY and QQQ can hold above the March 6 low and push higher it may present another opportunity as taken individually the uptrend is still intact in these ETFs.

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

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