What started as a negative week for the major stock indexes, ended with a bullish burst. July 26 and 27 saw a push higher in the index ETFs, with the S&P 500 SPDR (ARCA:SPY) and the Dow Jones Industrial Average SPDR (ARCA:DIA) pushing at resistance once again. The late week surge higher keeps the short-term (June and July) uptrend intact for these ETFs. Not all of the major index ETFs are confirming though. The Nasdaq 100 and Russell 2000 indexes are not close to resistance, and therefore will not be making new short-term highs. Volume also continues to be an element of concern. Indicators such as on-balance volume show declining interest in this rally, indicating it is more likely a bear market rally as opposed to the next wave higher in a longer term bull market.
This week, the S&P 500 SPDR ETF clawed back early week losses, making it back to near last week’s high. The July 19 high at $137.21 is the closest resistance level. A close above resistance is a positive sign, showing the ETF is continuing the short-term uptrend (June and July) by putting in higher swing lows and higher swing highs. Yet, prior pushes higher in this rally have faltered shortly after making a higher high, therefore selling is expected to emerge by the time the ETF reaches $139.75. While unlikely, if that level is broken resistance beyond is at the 52-week high – $142.21. The nearest support is at $132.60 (July 12 low) and $130.85 (June 25 low). If $132.60 is penetrated, it creates a lower low and the two month uptrend is called into question. If a move lower materializes, the downside target is the major low from June 4 at $127.14. On-balance volume is weakening long term and short term. The indicator’s downtrend indicates selling is likely to resume before we reach the 52-week high levels. Short term, the July price was not confirmed by a July high in the indicator, signaling underlying weakness.
For the Dow Jones Industrial Average SPDR, the June and July uptrend remains alive. The ETF found support above the July 12 low of $124.77 this week, and then proceeded to rally back to last week’s high. The July 19 high is $129.71, and if the ETF can manage to stay within that area next week, the 52-week high at $133.14 is within striking distance. Short term this trend is higher, but on-balance is in a downtrend. The divergence between buying volume and the rising price in the ETF indicates that it is going to be hard for this rally to sustain itself, unless volume increases on the “up” days. Three pullbacks in June and July put support right near the $124 area. If the ETF falls back through that area, the price is likely to decline into support at $120.19 (June 4 low).
PowerShares QQQ ETF (Nasdaq:QQQ), representing the Nasdaq 100 index, pushed higher on July 27, erasing the early week losses. Unlike the S&P 500 and Dow Jones ETFs though, the PowerShares QQQ remains well back of the July 19 high at $65.31. For the rally to continue, this will need to be exceeded and support at $61.50 will need to hold. Upside targets are $66.40 and $67.60 if the rally continues, although the 52-week high at $68.55 is likely out of reach unless we get a big pick-up in buying volume. On-balance volume, again, shows declining buying interest on the recent rally with the July price high not being matched by a new high on the indicator. Additional support is $60, the major June 4 low, but is not in any immediate danger at this time.
The iShares Russell 2000 Index (ARCA:IWM) ETF, popped higher on July 27, along the other indexes, but has been declining throughout July. Although, the two month trend for June and July remains higher at this time. Support is close by at $76.22, followed by $74.78. If these levels are penetrated the downtrend is likely to continue, heading towards the June 4 low at $72.94. In order for the uptrend to continue, support must remain intact and the ETF will need to climb back above the July 5 high at $81.84. If that occurs, the next target or resistance level will be $83, followed by the 52-week high at $84.66. Declining on-balance volume indicates a rise back to the $83 level (or high) is unlikely at this time, unless buy volume significantly increases.
The uptrend for June and July remains intact for the index ETFs, and can continue as long as the short-term highs are created and support levels hold. Currently, the S&P 500 SPDR and Dow Jones Industrial SPDR appear to be in the best shape, with the strongest short-term uptrends at this time. Volume and buying interest are a concern for all of the ETFs though. On-balance volume is declining and price highs are not being confirmed by the indicator. In order for these rallies to sustain themselves, buying interest needs to pick up otherwise the downtrend is likely to resume.
Charts courtesy of stockcharts.com