Tickers in this Article: DIA, SPY, QQQQ, IWM, AAPL
The markets continue to punish shorts as they easily sliced through some resistance levels. Market participants continue to shrug off bad news, and many indexes are close to testing their January highs. In fact, the small caps have taken the lead as the Russell 2000 has already traded to new highs. Many stocks have been acting well and sectors such as consumer discretionary have been leading the charge. It is a sign of health when leadership comes from riskier asset classes, and the markets are acting like consumers are back on track.

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We will lead off this week with a chart of the iShares Russell 2000 Index (NYSE:IWM) ETF. The small cap stocks have been on a tear, and IWM has bounced from the February lows to surge past the January top. The big question is whether the rest of the market indexes will follow them higher. IWM cleared an important level near $62 in February, and after resting for a week followed through with the breakout. The $65 level will be important to watch moving forward as a pullback to this level could bring in buyers who missed the initial move.

Source: StockCharts.com

The S&P 500 as represented by the S&P 500 SPDRS (NYSE:SPY) ETF, has also rallied sharply off the February lows. Overall though, unlike IWM, SPY remains in a larger trading range framed by the January highs and February lows. One positive development is that this week, SPY was able to clear a resistance level marked by the mid-February high. This follows the pattern IWM took and bodes well for a test of the January highs near $115. This is the level to watch to see if sellers begin to emerge again.

Source: StockCharts.com

The Diamonds Trust, Series 1 (NYSE:DIA) ETF continues to lag the other indexes, which isn't necessarily a bad thing. The Dow is composed of mostly slower moving large caps, and naturally underperforms in strongly uptrending markets. Much like SPY, DIA was able to clear a resistance level marked by the mid February high this week. Volume has been relatively low in this rally attempt. This could be a sign of lack of conviction, but the price action remains healthy despite this. It appears that a test of the $107 level is forthcoming and this remains the key area to watch. The $104 level is an important area to watch for support, now that DIA has cleared it as resistance.

Source: StockCharts.com

The Powershares QQQ ETF (Nasdaq:QQQQ) came very close to testing its January high on Friday. Large cap tech stocks performed well for the week, led by Apple, Inc. (Nasdaq:AAPL), which was able to trade to new highs. A test of the January highs looks inevitable for QQQQ at this point, and it will be interesting to see if the bulls have enough strength to pull away from this level. The $45 level would remain an area to watch for support on a pullback.

Source: StockCharts.com

Bottom Line
While the majority of the indexes remain in a trading range, the recent action has been bullish. The markets have shrugged off negative news and were able to overcome some resistance levels fairly easily. The one sticking point that could be an early warning signal has been the lackluster volume on the move higher. While volume isn't absolutely necessary, it doesn't bode well if market participants are shying away from rising prices. It's possible that next week will bring a test of very important levels for QQQQ, DIA and SPY, and it will be a warning signal if sellers step in on increasing volume, overwhelming the light buying volume. The markets have had a sharp move in a short period so it's very possible that they will pause or pull back from these levels. Traders need to be cautious and wait for the markets to prove themselves at these levels.

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At the time of writing Joey Fundora did not own shares in any of the companies mentioned in this article.

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