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Tickers in this Article: SPY, QQQQ, DIA, IWM
The markets finally moved out of the consolidation that had been taking place over the past three weeks and the direction they chose was higher. The markets staged an impressive rally this week that took the Dow, Nasdaq 100 and S&P 500 to new recovery highs. While volume was not spectacular, it did increase over volume levels from the past few weeks. Many market participants feared how the markets would respond to the elections and the Fed's announcement of the QE2 program, but in the end, the prevailing trend held and the markets broke to higher ground.

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The S&P 500, as represented by the S&P 500 SPDRS (NYSE:SPY) ETF, finally followed in the Nasdaq 100's footsteps and broke through its April highs. This was a very important technical breakout, as it puts SPY at new recovery highs. One could argue that SPY is officially in a bull market now, since it has made a higher high on the weekly charts. If you look at its price action objectively since the bear market began you can see that SPY bottomed in early 2009 and spent the next several months rallying higher. The markets suffered through some weakness in mid-2010, even threatening to reverse lower. However, the markets broke higher from this consolidation and set the higher high. The most basic definition of an uptrend is for the instrument to be making higher highs and higher lows. With this week's move higher, it's clear that SPY meets this criteria. (For more, check out Track Stock Prices With Trendlines.)


Source: StockCharts.com

The Powershares QQQ ETF (Nasdaq:QQQQ) met this criteria weeks ago, and has been the clear leader in this market for months. In fact, QQQQ was able to get even closer to its prior bull market high of $55.07. Unfortunately, QQQQ has become really extended, especially in light of the gap higher this week. While it remains in a strong trend higher, it is clearly susceptible to a pullback here. The first area to watch would be a pullback to close the open gap near $53; beyond that the breakout area near $50 should also be monitored, as this was also an important pivot high from April.


Source: StockCharts.com

The Diamonds Trust, Series 1 (NYSE:DIA) ETF also managed to break out to new recovery highs and did so on an increase in volume. Now that the small consolidation that took place over the past three weeks has been cleared, it becomes much easier to conclude that an important breakout has occurred. The $110-$111 level is now the clear level to watch for a breakout failure, coinciding with both the April highs and the recent trading range.


Source: StockCharts.com

While the iShares Russell 2000 Index (NYSE:IWM) also surged higher this week, it couldn't join its market index peers in reaching new recovery highs. IWM is actually trading up to an important resistance level in the $74s. This level coincides with its April highs and is the level that IWM will need to clear in order to join its peers in a bull market. The recent consolidation near $69-$71 is now the immediate level to watch if IWM stalls at this level. IWM should be monitored: small caps are entering what has been a seasonally strong period for them.


Source: StockCharts.com


Bottom Line
This was a big week for the markets as SPY and DIA joined QQQQ in trading to new highs on the weekly charts. This is a very important technical breakout and puts these index ETFs in new bull markets. While the markets remain well off their all-time highs, this strength needs to be respected regardless of your opinion on the economy or reasons for this move. Price action is the most important indicator to watch and the trend is clearly higher right now. Despite the breakout occurring late in the week, the markets may already be susceptible to some profit-taking after their recent gap. However, traders should focus on the recent consolidation as an important support level to monitor. If the markets fall back under this level, it could signal a reversal, but the uptrend should be considered valid as long as the markets hold above this area on a pullback.

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