The Weekly Charts April 23

Any guidance?

Most of the major indices finished higher this week, but overall price action was predominately sideways throughout the week. In several of the index ETFs this lateral movement has created a small range, a range which could be significant going forward. The breakout of the small range which has developed is likely to provide more clarification on the longer-term direction of this market. An upside breakout of the range indicates we will likely see higher highs, while a downside breakout has bearish implications. Each ETF has its own situation and levels to consider.

SEE: The Anatomy Of Trading Breakouts

The S&P 500 SPDRS (ARCA:SPY) is one of the ETFs which remains in an uptrend. Since October it has been rising overall, and has been making higher highs and higher lows throughout 2012. The price drop on April 10 stayed above the former swing low (March 6) keeping the uptrend intact. From that time the ETF has moved sideways with a slight upward bias, creating a small consolidation formation. The breakout of that consolidation is likely to play a major role in if we continue to see higher highs or if the recent low(s) are broken and the ETF heads from primary support. Sustained price action above $139.36 indicates an upside breakout and a high likelihood the ETF will test the 52-week high at $142.21 and exceed it. If this scenario develops it may take a few weeks to reach the target at $144. On the hand, a drop below $135.76 means a test of the March 6 low at $134.36. If penetrated it signals a decline to $131 to $130 (which is primary support) over the coming weeks.

The Dow Jones Industrial Average SPDR (ARCA:DIA) broke support last week, but has shown improvement this week. The April 10 decline created a lower low (below the March 6 low) and thus drew the uptrend into question. Strength this week can be interpreted as positive sign yet the up-trend remains in question. The ETF will need to break through the 52-week at $132.68 for the possibility of further upside. Bears will be watching for a drop below the April 19 low at $128.82 for an early sign of weakness and a potential test of the April 10 low at $126.92. A drop below this level points to a decline into the $125 region.

SEE: Blending Technical And Fundamental Analysis

PowerShares QQQ ETF (Nasdaq:QQQ), representing the Nasdaq 100 index, which has been one of the strongest ETFs of those discussed lost a bit of ground this week (relatively speaking). Finishing out the week very near flat, it has been moving within a downward sloping trend channel since the 52-week high at $68.55 on April 3. Overall the uptrend is intact with the March 6 low remaining some distance away. $67.28 is the price to watch on the upside; a move above that indicates the 52-week will be tested again and likely surpassed. Declines from current levels are not major issues unless the March 6 low at $63.23 is penetrated drawing the trend into question. Therefore, the QQQ still remains relatively attractive on pullbacks with stops below the March 6 low.

The overriding lateral movement of the Russell 2000 iShares Index (ARCA:IWM) ETF, representing the Russell 2000 index, has been discussed almost every week for the last couple months, and this week sees no change. Since February the trading has taken place within an expanding range between $84.66 and $78.14. During this time it has been relatively weak compared to the ETFs discussed above, moving laterally as the others advanced. The expanding range means breakouts cannot be trusted until a definitive move outside the range occurs, followed by a pullback which respects support/resistance of the former range. In the short-term a rise above $81.60 could create a push toward the $84 region. A drop below the April 10 low at $78.14 could put in just a slightly lower low, such as $77.75, or it could mean a more significant decline. Under current conditions, there are other ETFs (discussed above) which present better trading opportunities.

SEE: Using Technical Indicators To Develop Trading Strategies

The Bottom Line
The S&P 500 SPDRS andPowerShares QQQ ETFs remain in up-trends, the Dow Jones Industrial Average SPDR’s trend is in question and the Russell 2000 iShares continues to move sideways. The non-confirmation of the indices has been addressed in past weeks and remains a potential issue. The picture painted by all four indices provides a better scope than looking at just one. The path no longer is “clearly” higher. Upside potential still exists and therefore breaks above the levels mentioned in the analysis should monitored for opportunities. Risk should also be monitored, with drops below the support levels indicating the potential for further declines.

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

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