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Tickers in this Article: DIA, IWM, QQQ, SPY
The market mood turned sour this week as more trouble coming from overseas kept traders on guard. After finishing last week on a high note, this week saw steady selling pressure from the start. The market indexes all finished in the red for the week and many stocks that started on a high note ended up giving back their gains as the week progressed. Many indexes are close to testing key support levels, so the next week or two should reveal the markets true intentions. The S&P 500, as represented by the S&P 500 SPDRS (NYSE:SPY) ETF, pulled back towards its October breakout level near $121 after failing to clear its 200-day moving average. It also dropped under its 20-day moving average in the process, and is now pulling back towards its 50-day moving average. While the exact moving average values are usually unimportant, the areas are a good measuring stick to a stock's character. SPY remains in a neutral zone here, but any more near-term weakness would likely spur on more selling pressure.



The Diamonds Trust, Series 1 (NYSE:DIA) ETF also ended up slipping back under its 200-day moving average this week. It is close to testing its October breakout area near $116, and this level has held as support on a few occasions. Much like SPY, DIA remains in a consolidation after a furious preceding rally and some profit taking is not surprising. However, DIA is at a critical area as well, and any sustained weakness under $116 may lead to increased selling pressure. (For more, see 5 Strong Stocks Poised For A Breakout.)



After holding above the $56 level for weeks, The Nasdaq 100, as represented the Powershares QQQ ETF (Nasdaq:QQQ) ETF, finally cracked this week. The move may be a little disconcerting for bulls, as QQQ is now acting as the weakest index, despite being the clear leader over the preceding few months. QQQ is now below prior support and its 50- and 200-day moving averages. There is some gap support and a prior low near $54 that may bring in buyers, but overall the action in QQQ doesn't bode well for market bulls.



One slight positive is that the small caps, as represented by the iShares Russell 2000 Index (NYSE:IWM) ETF, are not moving lower in unison with QQQ. IWM more closely resembles SPY or DIA in that it dropped down towards its breakout level near $71. IWM's 50-day moving average looms just under this area and could help provide support for the ETF.



The Bottom Line
The week's action was a little surprising considering some of the underlying strength that has been developing in individual names. However, despite the weakness, the general markets remain in a consolidation with even QQQ not really qualifying as a breakdown yet. However, bulls will have to step up soon if they want to push these markets higher. While a shakeout under the support levels referenced above can not be ruled out, any sustained weakness under these levels would be a clear sign that the markets remain vulnerable to steeper declines. I would be more inclined to think that the recent strength was not a charade, but nothing this market does will surprise me. Volatility has remained high since August and doesn't appear ready to die down just yet. (For more, see Technical Analysis: Introduction)

Charts courtesy of stockcharts.com

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