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Tickers in this Article: SPY, DIA, IWM, QQQ, AAPL
The stock market ended the week with a bullish resolution as the market indexes closed at their weekly highs. Not only did the indexes finish at their highs for the week, but the majority also finished at multi-month highs. Only the small caps avoided that feat, although they did end near the top of their recent consolidation. Last week we mentioned that there may be some improvement in the markets underlying sentiment and this week saw continued buying on weakness. Both Tuesday and Thursday saw lower prices throughout the day, only to see buyers step in and close the market higher. The markets still have much work ahead of them, but it sure looks like the markets have put in their lows for 2011. The S&P 500 as represented by the S&P 500 SPDRS (NYSE:SPY) ETF closed the week out at the highest prices it has seen since the decline that began in August. While SPY still has plenty of overhead resistance, the rally from its recent lows has been staggering. SPY attempted to consolidate this week as it traded sideways near $120-$122 but buyers remained impatient and only allowed a few days of rest. This is a good show of strength as SPY could have easily experienced a deeper pullback and still remained healthy. While the SPY will need to take a more extended breather soon, it may make a run towards $126-$127 first. This is a key level to watch in the near term as it marks a prior support level from June and the approximate area of the 200-day moving average.

The Diamonds Trust, Series 1 (NYSE:DIA) ETF is actually already approaching its 200-day moving average from underneath. DIA cleared initial resistance near $116 on Fridays strong gap higher, and should provide an early look into how the other indexes will react in the coming days. If DIA can reclaim its 200-day moving average and trade back above prior support from June, it could set the stage for an eventual test of this year's high. (For more, see Moving Averages: Introduction.)

The Nasdaq 100 displayed mixed signals this week, as it remained trading above its 200-day moving average, yet closed well off its highs for the week. The Powershares QQQ ETF (Nasdaq:QQQ) ETF closed the week out back above the important $57 level, but had actually traded above $58 during the week. Much of the weakness late in the week can be attributed to its largest component, Apple, Inc. (Nasdaq:AAPL) and a negative reaction to its earnings report, so it remains to be seen if this will continue to weigh down on the index. QQQ remains fairly close to its yearly highs, and would certainly provide a boost to the markets if it got there.

It was more of the same for the continued lagging of the smallcaps. The group as represented by the iShares Russell 2000 Index (NYSE:IWM) ETF was the only index ETF to not close above their August highs. In fact, IWM has yet to even clear its September highs. However, IWM has been forming a flag type consolidation the past two weeks, within the larger base and traders should keep a close eye on it. A close above $71.50 should lead to a test of the $74 level and possibly more.

The Bottom Line
The markets recent strength is helping to heal many individual stocks. This week, the markets attempted to take a breather and it is a bullish sign that the markets stubbornly held on to its recent gains. This is a definite change in character from August and September when the markets would see urgent selling after a couple days of strength. We are also entering what is typically a seasonably favorable period. The end of the year is typically bullish and of course leads into the beginning of the year which is also seasonably favorable.

There is still much work to be done though. The indexes still remain under some key resistance levels (other than QQQ), and as bullish as the past few weeks have been, in the larger scheme of things, the market indexes technically remain vulnerable. Traders need to keep their guard up, but it does appear as if the markets will be presenting some opportunities soon. (For more, see Technical Analysis: Introduction.)

Charts courtesy of

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

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