Filed Under:
Tickers in this Article: DIA, SPY, QQQQ, IWM
The general markets were able to finish higher on this quadruple witching options expiration week. Despite the gains being relatively modest, there was much progress made by the bulls this week. In general, the markets were able to clear some initial resistance levels, and have managed to at least stabilize after the past few weeks of weakness. While there are no guarantees that the markets won't continue to head lower, the health of the near-term trend has managed to improve.

IN PICTURES: 7 Tools Of The Trade

The S&P 500 as represented by the S&P 500 SPDRS (NYSE:SPY) ETF had been running into problems every time it tested the $110.80 area over the past few weeks, and it was finally able to hurdle this level on Tuesday. This level also happened to coincide with the 200-day moving average, and SPY was able hold above this average the rest of the week. The $110.80 level should now act as support, and the fact that it has held on the first few tests is a positive. The next level to watch on the upside would be near $115 which coincides with the 50-day moving average and a prior high from January.

The Diamonds Trust, Series 1 (NYSE:DIA) ETF which tracks the Dow Jones Industrial Average also managed to hurdle past near term resistance as it cleared the $103 level. Both DIA and SPY have managed to form small double bottoms and the short-term outlook is stabilizing. Both have managed to recapture their 200-day moving averages but remain below their 50-day moving averages. DIA is differing in that it surged past its double bottom and has put some room between itself and the breakout area. DIA will likely come back to retest this area as support in the near future and the $103 level should be watched to see it bulls step back in.

The Nasdaq as represented by the Powershares QQQ ETF (Nasdaq:QQQQ) also managed to close above a small double bottom base this week. One big difference between QQQQ and SPY/DIA is that QQQQ managed to defend its 200-day moving average before this week which shows some relative strength. The level to watch in the near future for support is the top of the double bottom near $46.70. Looking beyond the 50-day moving average, next level of significant resistance appears to be near $49.

While the Russell 2000 as represented by the iShares Russell 2000 Index (NYSE:IWM) has been showing relative strength against the other market index ETFs, it actually under performed this week. Even though IWM managed to hold above its 200-day moving average, it hasn't been able to decisively clear the double bottom it is trying to form. This is interesting because IWM has been leading the markets for several months now. IWM should be watched as it tests this level as a failure could drag the rest of the markets down with it.

The Bottom Line
While this week has certainly been positive for bulls, the markets remain vulnerable to further downside. In the shorter timeframes, the small double bottoms that have formed are basically confirming the recent lows as support. This is ultimately the primary level to watch moving forward. Stepping back to intermediate timeframes, the markets are still well off their recent highs, and below a declining 50-day moving average. There is also a larger possible head and shoulders top that is forming in the indexes. While this pattern may be too obvious and thus may fail, sellers will likely appear as the markets tick higher in anticipation of this pattern. Many individual stocks are starting to look much healthier, and traders should be patient and only take the best trading opportunities. By focusing on only the best patterns, traders will be able to take advantage of a possible bottom, or worst case, be able to limit their risk by focusing on the strongest of stocks. Looking forward, the markets remain vulnerable despite the progress made this week.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Charts courtesy of

comments powered by Disqus
Trading Center