Markets picked up steam this week, managing to make higher highs than last week. Volatility has been depressed since the start of the year, and that continued this week. Average True Range (ATR) readings for the major index ETFs are holding steady at levels not seen since May, 2011 - well before the steep August decline. Friday's higher open puts the S&P 500 (NYSE:SPY) ETF and the Dow Jones Industrial (NYSE:DIA) ETF near the highs of last week, while the PowerShares QQQ (Nasdaq:QQQ) and Russel 2000 iShares (NYSE:IWM) ETF have moved aggressively higher from last week's price action.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

S&P 500 SPDRS (NYSE:SPY) ETF, representing the S&P 500 index, moved progressively higher this week, managing to take out last Thursday's high at $133.40. That was an important move as it means the uptrend is still in tact. The ETF is now very close to the July, 2011 intra-day high at $135.70 (resistance). It is now likely this area will be tested. A downward sloping trendline can be drawn between the May, 2011 high and the July, 2011 high; when extended to the right it is clear to see the market has broken this trendline. This means a test of the May high at $137.18 is not unlikely if near-term resistance is penetrated. One cause for concern, though, is the steadily declining volume as the market moves higher. Ideally volume should rise as the market rises; when it does not, it signifies a lack of interest. The MACD is also showing a slight negative divergence - indicating potential underlying weakness. (For related reading, see Trading The MACD Divergence.)

DJ Industrial Average (NYSE:DIA) ETF is in a similar position to SPY, but is much closer to the May, 2011 at $128.63 (on a price-adjusted basis this level has been exceeded as shown on chart). This is the next resistance level to watch, as a rise above this level is significant and means a longer-term uptrend is still unfolding. As with SPY, though, volume is not confirming the rally, and there is also a negative divergence on the MACD. The upward sloping trendline since October, 2011 can be used as a guide - if the market breaks back below the rising trendline (currently near $123) it is a strong signal to take caution. (For related reading, see The Utility Of Trendlines.)

PowerShares QQQ (Nasdaq:QQQ) ETF, which represents the Nasdaq 100, is at a 52-week high. While QQQ paused near resistance from August, 2011 last week, it has broken away this week. In fact, we need to go back to 2001 - when the market was still declining from the tech crash - to see current levels. This means there is very little traditional resistance in sight. Volume once again remains a potential issue, but the MACD is more in-line with confirming the move higher. Given the series of highs between $59 and $60 in 2011, this area should now act as support. A move back below $59 is a strong sign for caution. (For related reading, see Support & Resistance Basics.)

Russell 2000 iShares (NYSE:IWM) ETF has been moving aggressively higher over the last few sessions, breaking away from last week's price action. The gap higher on Friday broke above a downward sloping trendline which can be drawn from the May, 2011 high at $86.61. Before that high is challenged IWM will need to break through the July high at $58.97. Volume has not significantly picked up on the rally, and the MACD is barely past October levels even though price has moved far beyond October levels - these are both potential warnings signals. The upward sloping trendline which began in October can be used as a guide, with a drop below the line at $76 warning of a potential trend reversal.

The Bottom Line
Markets are moving higher this week, with SPY and DIA hovering near last week's highs while QQQ and IWM are moving more convincingly to the upside at the present time. Price action is quite strong and there is still room to move higher. There are warning signals though, mainly that volume is not significantly rising and there is negative MACD divergence in at least two of the four ETFs. The warning signals are signs of immanent danger though, as they are not timing indicators. Instead the upward sloping trend lines can be used to control risk, with a drop below indicating a potential reversal in the trend. (For related reading, see Retracement Or Reversal: Know The Difference.)

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

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

Charts courtesy of

Related Articles
  1. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  2. Chart Advisor

    Bumpy Roads Ahead In Transportation

    Investors are keeping an eye on the transportation industry. We'll take a look at the trend direction and how to trade it.
  3. Investing

    How ETFs May Save You Thousands

    Being vigilant about the amount you pay and what you get for is important, but adding ETFs into the investment mix fits well with a value-seeking nature.
  4. Mutual Funds & ETFs

    3 Fixed Income ETFs in the Mining Sector

    Learn about the top three metals and mining exchange-traded funds (ETFs), and explore analyses of their characteristics and how investors can benefit from these ETFs.
  5. Chart Advisor

    Agriculture Commodities Are In The Bear's Sights

    Agriculture stocks have experienced strong moves higher over recent weeks, but chart patterns on sugar, corn and wheat are suggesting the moves could be short lived.
  6. Investing News

    Top Tips for Diversifying with Mutual Funds

    Are mutual funds becoming obsolete? If they have something to offer, which funds should you consider for diversification?
  7. Professionals

    Top Stocks to Short, Go Long On to Beat the Market

    A long/short portfolio can help weather a variety of market scenarios. Here's how to put one together.
  8. Mutual Funds & ETFs

    Top 4 Asia-Pacific ETFs

    Learn about four of the best-performing exchange-traded funds, or ETFs, that offer investors exposure to the Asia-Pacific region.
  9. Mutual Funds & ETFs

    Top 3 Japanese Bond ETFs

    Learn about the top three exchange-traded funds (ETFs) that invest in sovereign and corporate bonds issued by developed countries, including Japan.
  10. Chart Advisor

    4 European Stocks to Consider Buying

    European companies, listed on US exchanges, that are providing buying opportunities right now.
  1. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  2. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  3. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  4. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  5. 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 >>
  6. 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 >>

You May Also Like

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!