What’s happening next week?

Stocks rallied through the middle of the week, but pulled back towards the end. The indexes have edged higher through June and July, but volume continues to be an element of concern. Since the indexes put in a bottom in early June, this rally has been met with significant declining volume. The declining volume signifies little buying interest on this rise, and that it is more likely a bear market rally as opposed to the next wave higher in a longer term bull market. Also, the indexes met with resistance this week, near the highs seen earlier in the month. This indicates we may be in for at least another short-term decline over the next week or two. The wrench in this outlook is that the June and July trend is higher, a continued push above resistance next week opens the door to a bit more upside.

This week, the S&P 500 SPDR ETF (ARCA:SPY) managed to put in a new intra-day high for the month, edging out the July 3 high at $137.51. That was a positive sign, but selling quickly re-entered as the exchange-traded fund (ETF) opened back below that point on Friday, July 20. The inability to follow through on the marginal breakout indicates the current rally (started July 12) may be out of steam. The nearest support is at $132.60 and $130.85 – the July 12 and June 25 lows. If $132.60 is penetrated, it creates a lower low and the one and half month uptrend is significantly jeopardized. In that event, the next downside target is a major low from June 4 at $127.14. If the ETF pushes higher next week, the target is $139.75; beyond that it is unlikely to reach the 52-week high of $142.21. Declining volume will make it hard for a significant push higher to occur. Also, through the June and July rally the ETF could only marginally break through former highs, before quickly retreating. If this was a full-fledged rally we should be seeing more enthusiasm on the pushes above former highs.

SEE: The Anatomy Of Trading Breakouts

The Dow Jones Industrial Average SPDR (ARCA:DIA) also managed to create a new monthly high this week. That keeps the June and July uptrend alive for the moment, but like the SPY, the rally appears to be losing steam. Volume is very low – for the entire week volume was less than half of the volume we saw on June 1. Despite the lack of volume, a push higher is still possible. A rally above $129.71 keeps this short-term rally alive and the 52-week high at $133.14 is within striking distance. Support is at $124 and if it’s broken it signals lower prices are to come. Additional support is at $120.19, the June 4 low, but is unlikely to hold if $124 is broken.

PowerShares QQQ ETF (Nasdaq:QQQ), representing the Nasdaq 100 index, created a new monthly high on July 19, edging passed resistance at $65.25 (July 5 high). Selling on July 20 quickly stifled a further advance though. Support is at $61.50 and $60. As long as support at $61.50 and $60 hold, there is a potential for this short-term rally, which began at the start of June, to continue. If the ETF can rally and hold above the July 19 high at $65.31, the next targets are $66.40 and $67.60. The 52-week high at $68.55 is unlikely to be tested as the region between the upside targets is stiff to resistance. Also, once again, volume has been in a fairly steep overall decline when compared to levels in May and early June.

SEE: Interpreting Support And Resistance Zones

The iShares Russell 2000 Index (ARCA:IWM) ETF, couldn’t muster a rally this week, and finished well below the July 5 high. Lack of a new high this week means that support is likely to be tested shortly. The nearest support is at $77.59, the July 12 low. Additional support is at $74.78, created by a series of daily lows throughout June. Primary support is just beyond at $72.94 (June 4 low), which if penetrated indicates the next major wave down in the downtrend is already underway. While unlikely, more upside could develop in this ETF. In order for that to materialize, the support levels can’t be broken. Additionally, the price will need to rally above the July 5 high at $81.84. If that occurs, resistance is above at $83, followed by the 52-week high at $84.66.

SEE: Support & Resistance Basics

Bottom Line:

The mid-week rallies managed to push some of the ETFs to monthly highs, yet the bullish moves were unconvincing. The upward push had no follow through and gave way to morning selling on Friday (July 20). Declining volume is also a concern, except for in the iShares Russell 2000, volume has been dropping from the May levels, creating a negative divergence with the price rally we have seen in June and July. More upside could still arise, but the rally is likely to be stifled before we reach the 52-week high price levels. A move back towards support should be watched closely; if broken, a further slide in prices is likely forthcoming.

Charts courtesy of stockcharts.com