In an options expiration week that also kicked off the first full earnings week of the season, the markets continued to inch higher and have now clearly separated themselves from the small consolidation formed in September. As recently as a month ago, many pundits were calling for a resumption of the primary bear market and a possible breach of the recent bear market lows. The current thrust from this summer's lows has been powerful, despite relatively lackluster volume. Markets have been clearly showing strength; just look at the Nasdaq 100, which surged to new recovery highs this week.
IN PICTURES: 7 Tools Of The Trade

Even more surprising is the fact that tech stocks, as represented by the Powershares QQQ ETF (Nasdaq:QQQQ), have been able to climb above their mid-2008 highs. This was approximately the time when the recent bear market began accelerating and the fact that the Qs have been able to recover is impressive. Much of this move can be attributed to Apple (Nasdaq:AAPL), which has been at all-time highs for several months. This week I am showing a 10-month chart; notice how QQQQ has been able to clear its April highs without much trouble. This group is clearly leading the way right now and market participants should be focused on its behavior moving forward.

Source: StockCharts.com

While the S&P 500, as represented by the S&P 500 SPDRS (NYSE:SPY) ETF, is still well below its mid-2008 highs, the group is approaching an important high formed earlier this year. SPY hit a roadblock at $122 in April, and after a swift decline, it chopped around all summer. Despite what looked like a probable breakdown, SPY ended up rallying through some resistance levels and is now a few points from its April highs. The financials continue to act poorly though, and they will need to cooperate at some point if SPY is to make a serious attempt setting this important higher high.

Source: StockCharts.com

The Diamonds Trust, Series 1 (NYSE:DIA) ETF, which tracks the Dow Jones Industrial Average, is right at its April highs, and is showing good relative strength to SPY. While DIA has a much smaller number of component stocks, it is highly watched and is an important indicator for the general markets. A breakout above the April highs would technically change the trend on the weekly charts to an uptrend.

Source: StockCharts.com

Besides volume, the other disappointment with the current market has been the relative underperformance by the small caps. The group, as represented by the iShares Russell 2000 Index (NYSE:IWM), still remains below its April highs. However, it's interesting to note that on longer term charts, the April highs are actually fairly close to the top of IWM's 2008 trading range. If IWM were to clear this level, it could set the stage for a strong move higher.

Source: StockCharts.com

Bottom Line
The move in QQQQ was an interesting development this week. By clearing its April highs, QQQQ is now in an uptrend on longer time frames due to the fact that it set a higher high on weekly and monthly charts. While many participants remain bearish on the economy, the markets are beginning to introduce some interesting possibilities. If SPY, IWM and DIA follow in QQQQ's tracks, it would set the stage for a possible end to the primary bear market that began in 2008. There is always the chance that this is a false breakout in tech stocks, and that the broader sectors will drag them back down, but for now, traders should remain open to the idea that higher prices may be on the horizon. (For more, see Technical Analysis: Introduction.) Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: First Trust Dorsey Wright Focus 5

    Take a closer look at the First Trust Dorsey Wright Focus 5 ETF, a unique and innovative fund of funds based on momentum and relative strength.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares National AMT-Free Muni Bond

    Take an in-depth look at the iShares National AMT-Free Municipal Bond ETF, a highly diverse and very popular muni bond fund.
  3. Mutual Funds & ETFs

    Top 3 Switzerland ETFs

    Explore detailed analysis and information of the top three Swiss exchange-traded funds that offer exposure to the Swiss equities market.
  4. Mutual Funds & ETFs

    7 Best ETF Trading Strategies for Beginners

    Exchange-traded funds are ideal instruments for beginning traders and investors. Learn the seven best strategies for trading ETFs.
  5. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  6. Trading Strategies

    Who Actually Trades or Invests In Penny Stocks?

    Although penny stocks are highly speculative, millions of people trade them daily. Here are 10 different types who do.
  7. Chart Advisor

    4 Stocks Still Flashing Buy Signals

    In the midst of volatility and a big market sell-off last week, these stocks are flashing buy signals.
  8. Mutual Funds & ETFs

    ETF Analysis: SPDR Dow Jones International RelEst

    Learn how the SPDR Dow Jones International Real Estate exchange-traded fund (ETF) is managed and for whom the ETF is most appropriate.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares JPMorgan USD Emerg Markets Bond

    Learn about the iShares JPMorgan USD Emerging Markets Bond fund, which invests in bonds of sovereign and quasi-sovereign entities from emerging markets.
  10. Active Trading Fundamentals

    How Hedge Funds Front-Run Index Funds to Profit

    Understand what front running is, and learn how hedge funds use this investing strategy to profit from the anticipated stock buys of index funds.
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  3. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  4. Indicator

    Indicators are statistics used to measure current conditions ...
  5. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  1. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  2. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  3. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  4. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  5. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  6. Is there a situation in which wash trading is legal?

    Wash trading, the intentional practice of manipulating a stock's activity level to deceive other investors, is not a legal ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!