March 4th , 2012 Market Summary

Commentary: The four indices were mixed this week; three of the indices hit fresh 52-week high and one of the indices broker below support. The trend remains higher for all the averages but there is a significant divergence occurring between one index ETF and the other three.

S&P 500 SPDRS (NYSE:SPY) ETF, representing the S&P 500 index, made a fresh 52-week high this week. SPY remains in a strong uptrend with the main trendline–going back to October–intersecting just below $132. Since the start of the year though, SPY has been moving higher in a fairly tight trend channel. That channel can be watched for early signs of a correction or as a profit taking signal. Channel support is at $135.25, with a breach below indicating a likely retreat toward the longer term trendline. Additional support is at $130. The price has recently been moving along the upper band of the channel. If this continues SPY could hit as high as $140 by next Friday as this is the current projection based on the channel. (For related reading, see The Utility Of Trendlines.)

DJ Industrial Average (NYSE:DIA) ETF also made a new 52-week on Wednesday. DIA also remains in a strong uptrend with the trendline–which began in October–intersecting at $126.75. Further support is at $125. The rate of upward acceleration is definitely slowing over the last couple weeks, indicated by the wedge like formation which is currently developing. If the ETF moves above $131 next week it would show the trend is accelerating again ($131 is more likely to act as resistance next week if approached). On the other hand a drop below the wedge low (currently $129), may be an early signal of a potentially larger decline into the longer-term trendline. (For related reading on ETFs, see 5 ETF Flaws You Shouldn’t Overlook.)

PowerShares QQQ (Nasdaq:QQQ) ETF, representing the Nasdaq 100 index, had another very strong week putting in a fresh 52-week high on Friday. That high slightly eclipsed the upside target provided in last week’s market summary. The uptrend is not in any danger at this time as the trend will remain higher even in the event of a steep correction. The upward trendline which began in October does not intersect until near $58. Since December though there is another trendline which can be used as a profit taking signal if it is breached. At present that trendline intersects at $63.85. A drop below that level means the aggressive leg of the trend is likely over, even though the overall trend remains higher. There is not much in the way of support until $62.50 and significant support at $60. The trend is up though, and with the ETF hitting $65 on Friday the upside target is $66.

Russell 2000 iShares (NYSE:IWM) ETF representing the Russell 2000 index, finished down on the week and also penetrated support. Since early February the ETF has been moving sideways between $83.31 and $81. The $81 area was support but was broken on Friday, indicating a downside target of $78.70. This is very near the 50-day moving average and also quite close to the trendline which began back in October. If the price moves above $83.31 the target is $85.50. At this time the breakout higher (above $83.31) is not likely as IWM has been relatively weak compared to the other indexes recently. The break below support is significant, especially since the index was unable to rally in recent weeks while the other indexes pushed higher. (For more on moving averages, see Simple Moving Averages Make Trends Stand Out.)

Three ETFs: SPY, DIA and QQQ all remain in strong uptrends. Trendlines and support levels can be used as profit taking signals as a breach of these levels shows something may be changing. The trend is up though and these three indices have not shown signs of weakness yet. IWM on the other hand broke below support this week while the other indexes pushed higher. This signals IWM is relatively weak compared to the other indexes at the present time.

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February 24th, 2012 Market Summary

February 24th, 2012 Market Summary

Commentary: After spending much of the week in the resistance area between $136 and $137, the S&P 500 SPDRS (NYSE:SPY) managed to create a new 52-week high on Friday, piercing the $137.18 level last seen back in May, 2011. The break through resistance is significant and confirms the moves in the Dow Jones Industrial Average (NYSE:DIA) and the Nasdaq 100 (Nasdaq:QQQ) ETFs. The Russell 2000 ETF has been the second strongest, of the indexes mentioned, so far this year but remains well off its 52-week high. The indexes each have their own levels of significance but can also be used a group to confirm overall trends.

S&P 500 SPDRS (NYSE:SPY) ETF, representing the S&P 500 index made a fresh 52-week high on Friday. While it is still uncertain if the market will be able to hold this new ground, it does send a positive signal and keeps the uptrend in motion on a short-term and longer-term basis. SPY has been moving within a trend channel (higher) since the start of the year, and that channel continues to hold. With the recent price move on Friday above last Tuesday’s high the next target is the upper band of that trend channel–next week this will be right around $140. That same trend channel provides support $135. A drop below this level is likely to find support at $131.50–the trendline which began back in October, or at $130–a significant support area and where the 200-day moving average is also very close to. (For related reading, see The Utility Of Trendlines.)

DJ Industrial Average (NYSE:DIA) ETF also made a new 52-week high on Friday. The trend remains higher since the October low and is not in any immediate danger of breaking. Trendline support comes in at $126.40 and is followed shortly by the 200-day moving average at $125. Therefore,the trend remains healthy until those levels are pierced which would then bring about the possibility of a larger correction. The trend higher has slowed in 2012 compared the impressive volatility seen in the last few months 2011. This has resulted in an ascending wedge formation in DIA, with the price very close to the up band. If price moves aggressively through this upper band it would show that the trend is accelerating. Throughout February the price has continually crept along this band, edging higher. Based on the average weekly movement of $2.62 support should hold next week at $127.30 and in the event of a rally $133 is likely to cap upside moves.

PowerShares QQQ (Nasdaq:QQQ) ETF, which represents the Nasdaq 100 index, continues to power higher in an aggressive fashion. The move above $63.86, mentioned in last weeks post and the follow-up move through $64 signals the next advance to $65. The target of $65 is based primarily on the (approximately) one dollar range QQQ has spent time in recently, when is then added to the breakout price. $65 is also the top of the trend channel which we can see this market has been in since August, 2011. Therefore, $65 is likely to pose resistance. A significant rise above that level in a short period of time indicates (while hard to believe) an acceleration of this already steep ascent. The uptrend is not in any danger at this time as the trend will remain higher even in the event of a steep correction. Therefore, if desired, $62.50 can be used support and a stop level as a drop below this level could trigger additional selling into $60 or even $58–areas of primary support. The 200-day moving average is also in this area.

Russell 2000 iShares (NYSE:IWM) ETF, representing the Russell 2000 index, has had a strong in percentage terms but remains well below the 52-week high at $86.81. The trend remains higher for IWM but since early February the ETF has been moving sideways between $83.31 and $81. The breakout of this range is highly likely to determine the direction of the ETF next week. With the trend higher, the other indexes continually pushing through resistance and the price (of IWM) very close to the upper portion of the range the bias is for an upside breakout. $81 provides the support, and a break below it indicates a downside target of $78.70. This is trendline support and the 200-day moving average is also just below this level. If the price moves above $83.31 the target is $85.50. (For related reading, see 6 Popular ETF Types For Your Portfolio.)

Except for IWM all the other major indexes have recently made fresh 52-week highs. The trends all remain strong and with a number factors pushing IWM to the upside, it too is likely to resume its upward course after completing this consolidation. The trend should continue to be traded until there is some indication–a price signal–that it is over. Support levels can be used to manage risk; if support is broken it indicates a further decline but should be kept in perspective of the larger trend.

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The Weekly Report For January 30th-February 3rd

Commentary: It was a volatile week that ended up serving as a consolidation for the general markets. While the indexes generally closed near unchanged, there was plenty of movement mid-week following the State of the Union and Fed Statement. It was interesting to note, that despite the general indexes ending near flat, there were several individual stocks that traded very well helping to propel several sectors. Investors also revealed an appetite for risk, as the Nasdaq and smallcaps fared significantly better than the S&P 500 and Dow.

The S&P500 as represented by the S&P 500 SPDRS (NYSE:SPY) ETF ended the week near unchanged, although it did trade in a wide range. After a strong close on Wednesday, SPY gapped higher and reversed on Thursday. This action may be revealing that the market is in need of some consolidation or rest, as traders backed away from higher prices. While Friday was a strong day, as SPY shed earlier weakness and trended higher most of the day, this weeks highs may now act as a line in the sand for the index. Traders need to remain cautious, despite the multitude of stocks moving higher. This weeks highs occurred at a significant level, so it is likely that sellers may still remain above $132.50. (For related reading, see Is It Possible To Invest In An Index?)

The DJ Industrial Average as represented by the Diamonds Trust, Series 1 (NYSE:DIA) ETF traded in a very similar fashion to SPY this week. After some mid-week volatility, DIA ended slightly in the positive column. The more significant pattern to note is that DIA has been resting just under the key $128 level. This is right under last years highs, and may continue to act as a barrier in the near future. However, it is a positive that after failing to crack this level, DIA has traded sideways rather than fall apart. If DIA continues to consolidate quietly, it could set the stage for a successful breakout. (For related reading, see 3 Reasons Not To Trade Range Breakouts.)

While SPY and DIA took a break this week, the Nasdaq 100 as represented the Powershares QQQ ETF (Nasdaq:QQQ) ETF ended the week at multi year highs. Despite closing off its Thursday highs, QQQ ended the week solidly in the green aided by an earnings surprise from Apple, Inc. (Nasdaq:AAPL) that sent the stock soaring higher. We’ve mentioned on several occasions that it is always a positive when leadership comes from the Nasdaq or smallcaps, so it is definitely worth noting that QQQ is leading the charge again. While QQQ could stand for some consolidation, this weeks price action was very positive for the markets. (For related reading, see An Introduction To Small Cap Stocks.)

The other standout this week was the smallcaps as represented by the iShares Russell 2000 Index (NYSE:IWM) ETF. The index ETF was actually able to close near its highs for the week, and well above last weeks close. After months of lagging its larger cap peers, it was good to see this group take charge. IWM has now put some distance between itself and last October’s highs increasing the odds that the markets have more upside ahead. The most basic definition of an uptrend is a market setting higher highs and higher lows, and this is the pattern that has started to unfold for IWM. Of course, last years highs still loom above, but important progress has been made so far in 2012. (For related reading, see An Inside Look Into ETF Construction.)

While the general markets are still overbought, there have been some subtle changes that imply an increase in underlying strength and a possible change in character. As mentioned above, it is good for the markets when leadership comes from riskier assets. A market can only go higher when market participants are chasing returns rather than focusing on safety. Beyond the action in the indexes, many individual stocks are performing well, and a healthy market depends on broad participation. Currently, over 85% of stocks are trading above their 50-day moving average which reveals a broad based rally. However, it also reveals an overbought market, so traders can’t simply throw caution to the wind. It would be very difficult for the markets to stage an extended rally from this point, so some consolidation or pullback remains likely. If the pullback is tame, it could set the stage for a healthy rally moving forward. (For related reading, see Simple Moving Averages Make Trends Stand Out.)

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