After spending much of the week in the resistance area between $136 and $137, the S&P 500 SPDRS (NYSE:SPY) manged to create a new 52-week high on Friday, piercing the $137.18 level last seen back in May, 2011. The break through resistance is significant and confirms the moves in the Dow Jones Industrial Average (NYSE:DIA) and the Nasdaq 100 (Nasdaq:QQQ) ETFs. The Russell 2000 ETF has been the second strongest, of the indexes mentioned, so far this year but remains well off its 52-week high. The indexes each have their own levels of significance but can also be used a group to confirm overall trends.
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S&P 500 SPDRS (NYSE:SPY) ETF, representing the S&P 500 index, made a fresh 52-week high on Friday. While it is still uncertain if the market will be able to hold this new ground, it does send a positive signal and keeps the uptrend in motion on a short-term and longer-term basis. SPY has been moving within a trend channel (higher) since the start of the year, and that channel continues to hold. With the recent price move on Friday above last Tuesday's high the next target is the upper band of that trend channel - next week this will be right around $140. That same trend channel provides support at $135. A drop below this level is likely to find support at $131.50 - the trendline that began back in October, or at $130 - a significant support area and where the 200-day moving average is also very close to. (For related reading, see The Utility Of Trendlines.)
DJ Industrial Average (NYSE:DIA) ETF also made a new 52-week high on Friday. The trend remains higher since the October low and is not in any immediate danger of breaking. Trendline support comes in at $126.40 and is followed shortly by the 200-day moving average at $125. Therefore, the trend remains healthy until those levels are pierced, which would then bring about the possibility of a larger correction. The trend higher has slowed in 2012 compared the impressive volatility seen in the last few months of 2011. This has resulted in an ascending wedge formation in DIA, with the price very close to the up band. If price moves aggressively through this upper band, it would show that the trend is accelerating. Throughout February, the price has continually crept along this band, edging higher. Based on the average weekly movement of $2.62, support should hold next week at $127.30 and in the event of a rally, $133 is likely to cap upside moves.
PowerShares QQQ (Nasdaq:QQQ) ETF, which represents the Nasdaq 100 index, continues to power higher in an aggressive fashion. The move above $63.86, mentioned in last week's post, and the follow-up move through $64 signals the next advance to $65. The target of $65 is based primarily on the (approximately) $1 range QQQ has spent time in recently, which is then added to the breakout price. $65 is also the top of the trend channel which we can see this market has been in since August, 2011. Therefore, $65 is likely to pose resistance. A significant rise above that level in a short period of time indicates (while hard to believe) an acceleration of this already steep ascent. The uptrend is not in any danger at this time as the trend will remain higher even in the event of a steep correction. Therefore, if desired, $62.50 can be used as support and a stop level as a drop below this level could trigger additional selling into $60 or even $58 - areas of primary support. The 200-day moving average is also in this area.
Russell 2000 iShares (NYSE:IWM) ETF, representing the Russell 2000 index, has had a strong week in percentage terms but remains well below the 52-week high at $86.81. The trend remains higher for IWM but since early February the ETF has been moving sideways between $83.31 and $81. The breakout of this range is highly likely to determine the direction of the ETF next week. With the trend higher, the other indexes continually pushing through resistance and the price (of IWM) very close to the upper portion of the range the bias is for an upside breakout. $81 provides the support, and a break below it indicates a downside target of $78.70. This is trendline support and the 200-day moving average is also just below this level. If the price moves above $83.31 the target is $85.50. (For related reading, see 6 Popular ETF Types For Your Portfolio.)
The Bottom Line
Except for IWM, all the other major indexes have recently made fresh 52-week highs. The trends all remain strong and with a number of factors pushing IWM to the upside, it too is likely to resume its upward course after completing this consolidation. The trend should continue to be traded until there is some indication - a price signal - that it is over. Support levels can be used to manage risk; if support is broken it indicates a further decline but should be kept in perspective of the larger trend.
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At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.
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