Stock market index exchange-traded funds (ETFs) pushed slightly higher this week, for the most part, but some performed better than others. The last four days of the week was flat for all of the index ETFs, with the price action confined to a small range. Volume was also near the lowest levels seen in the last year. Close proximity to 52-week highs in three of the four index ETFs could attract buying to test those levels. Therefore, the trend currently remains up, but a break below key support levels would warn of a significant decline.

SEE: Support & Resistance Basics

The S&P 500 SPDR (ARCA:SPY) ETF was relatively flat this week, trading much of the time just above $140. Within close proximity is the 52-week at $142.21 from April 2. A significant level like this can often act like a magnet, pulling the price towards it. While volume remains light, it is quite likely the $142 area could be tested and potentially exceeded. Based on current conditions, though, a large rally is unlikely to unfold from current levels. Further rallying is more likely to be short covering and short-term technical buying as opposed to longer term investors and funds wanting to own shares. Evidence of this is the declining volume and also bearish divergence on many indicators. The relative strength index (RSI) has failed to make new highs since the middle of June as the price of the ETF has risen. Yet, price is what matters, and currently it is moving higher. Short-term, a drop back below $139 warns of a correction to $135.50 -the short-term upward trendline. A drop below $135.50 warns that the short-term uptrend is over and the downtrend which began in April is continuing.

The Dow Jones Industrial Average SPDR (ARCA:DIA) ETF was also relatively flat, hovering just above $131 much of the week. The 52-week high at $133.14 is within striking distance. That is the next resistance level and will act as a pivot point. Short-term, a rise above $132 is likely to result in a test of the 52-week high which could spark buying interest and short covering if that important level is exceeded. If the ETF pushes through the 52-week high it should be able to hold above it, if it can't hold above it on a closing price basis, the potential for a double top is high. This is because volume continues to decline and the RSI continues to flat-line even while the price of the ETF edges higher. A drop below $130 is likely to trigger selling into trendline support at $127.50. If selling continues below $127.50 it is a significant warning sign that the short-term uptrend is over.

SEE: Momentum And The Relative Strength Index

PowerShares QQQ ETF (Nasdaq:QQQ) was bolstered higher on Monday, but traded horizontally most of the week after that. Once again, the ETF is fairly close to the 52-week at $68.55, a level not seen since the start of April. Before that level is reached though there is resistance at $67.63 (May 1 high) and $67. A sustained push through $67 is likely to trigger a challenge of the next resistance level, and if that is exceeded look for the price to head towards that 52-week high mark. It may not be a smooth ride though. A drop below $66 indicates the price will decline into trendline support at $62.75. If trendline support is broken so is the short-term uptrend, and lower prices are likely to be seen over the longer term. While the short-term trend is up at this time, and could continue, it is important to note that since April the ETF is in an overall downtrend.

SEE: Interpreting Support And Resistance Zones

The iShares Russell 2000 Index (ARCA:IWM) ETF popped higher on Monday but made little progress the rest of the week. This ETF has been in a downtrend since late March, but has seen some signs of strength beginning in June. Whether that strength can continue though is very questionable, as a series of lower highs since July indicates there is little buying interest. These price movements have created a triangle formation, and when the formation breaks it is likely to signal the longer term direction of the ETF. Currently, the triangle provides resistance at $80.75, although $82 (a recent swing high) provides a more reliable breakout signal. If the upside breakout occurs the target is $92.41. This target is well above the 52-week high at $84.66. Unless the other index ETFs all continue to move aggressively higher, this scenario is unlikely to unfold. On the other hand, a drop below $79 is likely to trigger selling into support of the triangle pattern at $76.40. A breach of $76.40 signals a significant decline in price, as the downtrend continues and price moves toward the triangle breakout target of $64.75.

The Bottom Line
Short-term the trend remains higher for these stock market index ETFs. For three out of four the 52-week high is within striking distance, and those pivotal levels could be tested and even exceeded. If the price approaches those levels watch for double tops or false breakouts. Declining volume and indicator divergence warn of underlying weakness. The short-term trendline is also a valuable tool. As long as the price remains above trendline support the ETF is creating higher lows and the push higher can potentially continue. If that trendline support is broken though, it warns of a longer-term correction.

Charts courtesy of

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

    The Top Vanguard Emerging Market ETF

    Learn why growth investors should consider investing in VWO's portfolio of emerging market stocks.
  2. Investing Basics

    How to Pick the Best Muni Bonds and Muni Bond ETFs

    Municipal bonds are a good addition to a diversified portfolio as long as you choose correctly based on population and local economic trends.
  3. Chart Advisor

    Stocks at Important Technical Levels

    These stocks are breaking or holding at key support and resistance levels. How they react here impacts the direction of the price over the coming months.
  4. Mutual Funds & ETFs

    Top 3 Emerging Markets Bond Mutual Funds

    Discover detailed analysis of the top three mutual funds offering exposure to the emerging markets bonds, and learn about the suitability of these funds.
  5. Technical Indicators

    Explaining Autocorrelation

    Autocorrelation is the measure of an internal correlation with a given time series.
  6. Chart Advisor

    ChartAdvisor for October 9 2015

    Weekly technical summary of the major U.S. indexes.
  7. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  8. Investing Basics

    Top Tips for Diversifying with Exotic Currencies

    Is there an opportunity in exotic currencies right now, or are you safer sticking to the major ones?
  9. Mutual Funds & ETFs

    The 3 Biggest Mutual Fund Companies in the US

    Compare and contrast the rise of America's big three institutional asset managers: BlackRock Funds, The Vanguard Group and State Street Global Advisors.
  10. Chart Advisor

    These Oil & Gas Stocks Have Reversed

    It's been a long downtrend for oil stock owners, but there's hope. These four oil and gas stocks have reversed and may keep trending to the upside.
  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!