The major index ETFs managed to recoup some losses this week, yet still remain within a short-term downtrend. While this week's action was mostly to the upside, for the most part, these ETFs could not climb above last week's high - resistance. Pushing through that resistance level is required if these markets are going to continue to recover. Failure to break resistance, and if certain support levels below are once again tested, these ETFs could see further declines in the coming weeks.

SEE: Interpreting Support And Resistance Zones

The S&P 500 SPDRS (ARCA:SPY) saw strong upside moves on June 5 and 6 but then couldn't keep the rally going on the 7, faltering at resistance. Resistance is now at $134, and a move above that level would negate some of the bearishness and could even trigger a bear trap rally. Further resistance is at $136 and $140, the latter of which is the target if we break back above $134. A drop below $129.50, on the other hand, is bearish and likely to result in a test of the recent low at $127.14. If that low is breached, the next downside target is at $126, followed by $122 (if we move below $126).

The Dow Jones Industrial Average SPDR (ARCA:DIA) surged higher on June 6, recovering a good chunk of the losses seen the week prior. The resistance level to watch is still overhead, though. If the ETF can climb back above $126, it could bring in additional buying. Additional resistance is at $128 and $131.50. A drop back below $122 has bearish implications, and provides further downside targets of $120, followed by $116 if the former is breached.

SEE: The Psychology Of Support And Resistance Zones

PowerShares QQQ ETF (Nasdaq:QQQ), representing the Nasdaq 100 index, also clawed back some prior losses this week. Resistance is at $63.15, and momentarily the ETF managed to move above this ($63.18) on June 7, but was quickly reversed. Therefore, this area still poses a hurdle the ETF must overcome if it is to continue moving higher. If a legitimate break above $63.18 occurs, the target, and next major resistance level, is $66. Support is $60 followed by $59. The $59 mark is important because it was a resistance area back in October and November, and should now support declines. If it does not, it is a longer-term bearish signal. The next target would be at $56, should $59 be breached in the coming week(s).

Russell 2000 iShares Index (ARCA:IWM) ETF, representing the Russell 2000 index, also bounced this week, but was unable to climb back above the pivotal $78 level. A drop back below $74.60 indicates continued selling and would be confirmed by a move below the recent low at $72.94. If this occurs, the next downside target is $71, followed shortly by $70, which are right in the vicinity of the long-term upward trendline going back to 2009. At this time, the short-term trend is down and that looks like it will continue. This ETF will need to get back above $78 in order to renew the hopes of the bulls. $78 is strong resistance; that was proven again on June 7, as the ETF made an intra-day high at $77.72 before declining. Until that resistance level is broken, being short is likely preferable to being long. Further resistance is at $80 and $81.

The Bottom Line
With the ETFs approaching resistance this week, this will be the crucial level to watch next week. How each ETFs reacts around their respective resistance level provides insight into the longer-term direction of the ETF. Failure to break through resistance means support is likely to tested, and if breached is likely to send the ETF lower. On the other hand, a break through resistance is likely to trigger buying interest and short-covering. The major support levels broken in prior weeks indicate these rallies are "bear-market rallies" and that means caution is still warranted when buying. Always use risk controls no matter which side of the market you are on.

SEE: Risk Management Techniques For Active Traders

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

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares Asia 50

    Read more about BlackRock's iShares Asia 50 Fund, an ETF that follows the four "Asian Tiger'' nations plus China.
  2. Mutual Funds & ETFs

    ETF Analysis: WisdomTree International LargeCp Div

    Learn more about the WisdomTree International LargeCap Dividend fund, an income-based international equities ETF that focuses heavily on the United Kingdom.
  3. Chart Advisor

    ChartAdvisor for September 4 2015

    Weekly technical summary of the major U.S. indexes.
  4. Mutual Funds & ETFs

    ETF Analysis: United States Gasoline Fund

    Learn about the United States Gasoline Fund, the characteristics of the exchange-traded fund, and the suitability and recommendations of it.
  5. Mutual Funds & ETFs

    ETF Analysis: United States 12 Month Oil

    Find out more information about the United States 12 Month Oil ETF, and explore detailed analysis of the characteristics, suitability and recommendations of it.
  6. Mutual Funds & ETFs

    ETF Analysis: ProShares Ultra Nasdaq Biotechnology

    Find out information about the ProShares Ultra Nasdaq Biotechnology exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
  7. Insurance

    Top 6 Car Insurance Companies in New York

    Read about the top private auto insurers licensed to operate in New York, and learn about recent trends in market share among these companies.
  8. Mutual Funds & ETFs

    ETF Analysis: Direxion Daily S&P Biotech Bull 3X

    Learn more about the Direxion Daily S&P Biotech Bull 3x exchange-traded fund, a new triple-leveraged ETF tracking biotechnology equities.
  9. Mutual Funds & ETFs

    ETF Analysis: First Trust Health Care AlphaDEX

    Learn more about the First Trust Health Care AlphaDEX exchange-traded fund, an indexed fund that uses an advanced stock selection methodology.
  10. Forex Strategies

    Two Great Currencies To Profit From Oil Volatility

    U.S. dollar crosses with Canadian and Australian dollars offer easy access to crude oil trends due to their tight correlation with energy futures.
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  3. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  4. Indicator

    Indicators are statistics used to measure current conditions ...
  5. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  6. Fractal Markets Hypothesis (FMH)

    An alternative investment theory to Efficient Market Hypothesis ...
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... 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

COMPANIES IN THIS ARTICLE
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!