SPY, QQQQ, DIA Weekly Technical Analysis

It’s been another very interesting week to say the least. It began with a sharp move higher following last week’s mini “crash”, as the general indexes gapped up approximately 4% on Monday morning. While intraday volatility was certainly higher than the past few weeks, in the grand scheme of things the markets were basically attempting to stabilize after last week’s shock event. By Friday, the markets had reversed to close the gap from earlier in the week and were close to the same area as last Thursday’s close. It will take some time for the markets to stabilize, and it’s possible that they will stay in a trading range between last Thursday’s low and this week’s highs, at least in the near term.

It’s interesting that many of the indexes failed this week right at their 50-day moving averages. This is a commonly used level for determining a stock’s intermediate trend, and sellers clearly rushed in after the reflexive bounce off last week’s reactionary lows. In looking at the S&P 500, as represented by the S&P 500 SPDRS (NYSE:SPY) ETF, you can see the sharp gap higher Monday morning followed by a rally attempt into the $118 area. This is where sellers stepped in and this level was a prior congestion area dating back to March. This will be an important level to watch in the near term as a move back into this level would put the recent recovery highs within reach.

It was much of the same story for the Diamonds Trust, Series 1 (NYSE:DIA) ETF, which tracks the Dow Jones Industrial Average. While DIA was able to close above its 50-day moving average for one day, it failed along a similar congestion area to SPY. These areas are more important than a moving average as it shows a level where one group of market participants overwhelmed another. The $110 area will be a key level to watch moving forward to see if the bulls can reclaim prior support. On the downside, all eyes will be on the lows set during last Thursday’s crash. In fact, this level could act as a price magnet of sorts, as traders will worry about a break to new lows.

The Nasdaq, as represented by the Powershares QQQ ETF (Nasdaq:QQQQ), was also able to fool bulls with a close above the 50-day moving average. While it is far from a certainty that the markets will head substantially lower, the bulls clearly failed on their first rally attempt from last week’s lows. QQQQ also failed at a prior support level. The $40 area will be the next level to watch on the upside. Looking lower, the decline paused near $46.50, which coincides with a prior peak. This could end up acting as a support level; if the QQQ can’t hold there, then last week’s lows may come into play.

Showing its penchant for increased volatility, the Russell 2000, as represented by the iShares Russell 2000 Index (NYSE:IWM) ETF, bounced sharper than the other indexes with two closes over its 50-day moving average. However, IWM suffered the same fate as other indexes, failing at prior support and heading back under its 50-day moving average. While certainly it should be classified as a failed test of resistance, it was improbable that the markets would digest the chaos from last week so quickly. Look for more back and forth in IWM as it attempts to stabilize.