A bit extended?
Stocks jumped up this week, especially on September 6 when the indexes jumped near 2%. For some of the major index exchange-traded funds (ETFs), that was enough to push them just above resistance levels. However, other index ETFs remained below resistance but were close to it. As mentioned in prior weeks, this is a pivotal area of stocks. How the market reacts in this area is likely to dictate the next major move that’s to occur, and whether it is to the upside or downside.
SEE: Technical Analysis: The Importance Of Volume
S&P 500 SPDR ETF (ARCA:SPY)
The S&P 500 SPDR (ARCA:SPY) ETF made another 52-week high this week, pushing above the former high (August 21) at $143.09. The uptrend since June remains intact as well as the trend channel the ETF has been trading in since that time. The channel has accurately represented the price swings up and down, and the ETF is currently pushing at the upper limit. The upper channel line – resistance – crosses at $145, although that will edge higher over time. Over the last few months, the ETF has reached the upper channel line and then pulled back to the lower portion of the channel. Channel support is currently around $138.50. A drop below the channel indicates further weakening is likely. Declining volume continues to be a concern; as the ETF rises it is doing so on an engine that is weakening. Currently the trend remains up, and until price drops below the trend channel, that uptrend remains the dominant factor.
Dow Jones Industrial Average SPDR (ARCA:DIA)
The Dow Jones Industrial Average SPDR (ARCA:DIA) ETF hovers near the May 1 high at $133.14. This area therefore remains a resistance until it is significantly cleared. The ETF has been moving higher within a trend channel, which has represented price swings very well since June. The channel is arguably a wedge – a chart pattern that often signals a trend reversal – as the price action is converging while moving higher. Since the channel is rising, the upper trendline will give resistance at $135 next week. The lower trendline provides support at $130. A drop below the channel (or wedge) signals a further price decline towards the 200-day moving average at $126.
PowerShares QQQ ETF (Nasdaq:QQQ)
The PowerShares QQQ (Nasdaq:QQQ) ETF jumped above the August 21 high at $68.88 this week, putting in a new 52-week high. As the trend of this ETF accelerated in early to mid-August, it broke above the trend channel it had been trading in. The old channel is still useful though – both trendlines are now acting as support. The upper band, which is the former resistance, now provides support at $67.30 – a price that was respecting on the most recent pullback. A drop below that support indicates a decline towards $64.25, the main trendline since June. Having cleared resistance, the upside targets are $69.60 followed by $72.30 based mostly on the breakout of a flag formation.
iShares Russell 2000 Index (ARCA:IWM)
The iShares Russell 2000 Index (ARCA:IWM) ETF moved up aggressively this week, clearing two resistance levels. The next obstacle the ETF faces is the March 27 52-week high at $84.66. Beyond that are the multiple 2011 price peaks between $86 and $86.81, which should act as a significant resistance if the price extends to those levels. Support is at $80, and if the ETF drops below that the trendline and 200-day moving average gives support just above $78.
SEE:Gauging Support And Resistance With Price By Volume
Bottom Line:
It’s been a strong week for stocks and all the ETFs remain in uptrends since June. Not all the ETFs have cleared resistance to a significant degree though, which means there is still the possibility that this rally could stall out very close to current levels. On the other hand, if all these ETFs clear that resistance, it is a strong signal that this market has more upside left. A breach of support warns that the bullish tone may be changing, and given the importance of these current levels such a warning deserves attention.
Charts courtesy of stockcharts.com
