What do they say?
It was a relatively flat week in the stock market, as the indexes pause below recent highs. Three of the ETFs recently made fresh 52-week highs, but have pulled off those levels. In order for the uptrend to continue, those levels will need to be exceeded. If they are not, the market bears may interpret the recent moves higher as a false breakout, and commence selling.
S&P 500 SPDR ETF (ARCA:SPY)
The S&P 500 SPDR (ARCA:SPY) ETF made a recent 52-week high on August 21 at $143.09; this slightly eclipsed the April 2 high at $142.21. Since the new 52-week high was created, the ETF has been flat to slightly lower. Short-term support is $140, and a drop below is likely to the send the price to test the trendline at $137.50. With an uptrend in place since June, there are multiple areas of support below the trendline, such as $135 and $132.50. Yet a breach of the trendline would warn this up-move is over. Currently though, the trend remains higher. In order for the trend to continue, the ETF needs to climb back above $143.09. Based on the trend channel the ETF is in, if the move higher occurs, the next target is $145.
Dow Jones Industrial Average SPDR (ARCA:DIA)
The Dow Jones Industrial Average SPDR (ARCA:DIA) ETF is currently testing the upward sloping trendline after failing to exceed the May 1 52-week high on the most recent rally. The 52-week at $133.14 has so far proven to be an elusive mark, with the most recent up-move topping out at $133.02 (August 21). The uptrend that began in June is now being tested, and a drop below $129 will break the trendline. This would warn of further declines. The next potential support is at $124 – a level that held up to multiple tests in June and July. If the rally continues, the price will need to push through $133.04 and $133.14. If that occurs, the next target based on the ETF’s trend channel is $134.25 to $135.
PowerShares QQQ ETF (Nasdaq:QQQ)
The PowerShares QQQ (Nasdaq:QQQ) ETF is still holding within close proximity to its recent 52-week high at $68.88 (August 21). The aggressive rally into that 52-week high, followed by a consolidation since then, has arguably created a flag formation. Flags are traditionally continuation patterns, but assuming the trend will continue, this can be dangerous. A move back above $68.88 indicates another push higher is likely. Targets are $69.60 followed by $72.30. If the push higher doesn’t come, a drop below $67 warns the price could fall to the upward sloping trendline, currently intersecting at $64.25.
iShares Russell 2000 Index (ARCA:IWM)
The iShares Russell 2000 Index (ARCA:IWM) ETF continues to trade in a more sideways, choppy fashion than the other index ETFs. Recent rallies have fallen well short of the March 27 52-week high at $84.66. With the short-term high put in on August 21, the bias is to the upside though. The higher swing high, in conjunction with the rising swings lows since June, means this ETF still has more buyers than sellers. Resistance is in the vicinity of $83, followed by $84.66. Support is at the trendline at $78, followed by $76 if the former is broken.
Despite the consolidation below recent highs, the index ETFs remain in uptrends. This is a pivotal area for stocks, as moves higher will confirm there is enough buying pressure to push the stocks well above the highs from earlier in the year. On the other hand, if buying does not pick up, traders will increasingly realize that the moves to new highs were false, and selling will likely enter the market.
Charts courtesy of stockcharts.com