The Major ETFs in the Week Ahead
July 16, 2012

The Week for the ETFs:Bulls Are Encouraged!

by Ian Harvey

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July 16, 2012

Introduction

Many of the widely watched major Exchange-Traded Funds break their uptrends from the June lows in early trading Thursday, but closed back above them. This gave encouragement to the bulls, and it was rewarded with sharp gains Friday that were enough to bring most of the averages back into positive territory for the week.

• The S&P 500 SPDRS (ARCA: SPY) closed pretty much unchanged for the week, as it got as low as $132.60 last Thursday but did not close below its uptrend (line g). There is next resistance now at $136.30, with further levels in the $138 to $138.50 area.

SPY, one of the major ETFs, had already exceeded the 61.8% 'Fibonacci Retracement’ resistance on the last rally, so the next key level to watch is the 78.6% resistance at $138.99.

The S&P 500 Advance/Decline (A/D) line was much weaker on the correction, as it dropped below its WMA and came quite close to the late June lows (line i). Now that the A/D line is back above its WMA, it needs to overcome the major resistance (line h) to confirm a sustainable new uptrend.

SPY did not close below the 20-day EMA last week, and it now represents first support at $134.39. There is further support at $132.60, with key levels near $130.85.

• The Dow Jones Industrial Average SPDR (ARCA: DIA), another of the major ETFs, closed below its 20-day EMA last Tuesday, hitting a low of $124.77, which was in the middle of the support zone identified last time. DIA did close the week slightly lower.

There is next resistance for DIA at $128.14, and then more important levels in the $129.40 to $130.50 area.

The Dow Industrials A/D line closed below its WMA last Thursday, but was back above it by Friday’s close. On a further rally -- the bearish divergence resistance that connects the April and May high -- needs to be overcome.


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PowerShares QQQ ETF (Nasdaq: QQQ), representing the Nasdaq 100 index, reversed quite sharply after breaking its downtrend from the April highs in early July (line a). The strength of the current rally will be important, as so far earnings from the tech sector have been disappointing.

There is next resistance at $64.51, and then at $65.32, which is the 61.78% Fibonacci resistance level. The all important 78.6% resistance stands at $66.72.

The Nasdaq-100 A/D line also reversed sharply after breaking through its downtrend (line c) at the end of June. The A/D is still below its WMA, and if tech is going to be a market-leading sector, it needs to make new highs on the current rally.

There is support now at $61.86 and then $61.54.

The tech sector continues to be led higher by Apple (AAPL), which moved through resistance at $590 in early July and reached a high of $619.87. AAPL retested the breakout level last week, getting as low as $592.68 before closing the week near $605.

Volume has been low for the last six weeks, and the on-balance volume (OBV) is still below its resistance (line g). A move above this level is likely needed to signal a move to new highs.

Russell 2000 iShares Index (ARCA: IWM) ETF, representing the Russell 2000 index, dropped to a low of $77.59 last Thursday, almost filling the gap from June 29. Despite Friday’s rally, it did finish the week a bit lower. The next resistance stands at $81 to $81.50 and the downtrend (line a). There is major resistance waiting between $82 and $84.

The Russell 2000 A/D line (not shown) held above its WMA on the correction, which is a positive sign, though it is still below long-term resistance.

The relative performance, or rs analysis, completed its bottom formation in June by moving through the resistance (line b). It is still holding above its WMA, and suggests the small caps are becoming a leading sector. The OBV is still weak, however, remaining below the downtrend (line c).


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Conclusion

The stock market eventually turned higher by the end of the week, but there needs to be further strength to confirm the bullish case, particularly for the ETFs, and maybe the election-year rally that could last until the end of the year has begun.

Last week was certainly a test of good support for the major ETFs, which allows for good risk control for those who used it as a buying opportunity. If there is confirmation of a new intermediate-term uptrend in the major ETFs, there will be plenty of buying opportunities in the coming weeks. The financial and energy sector are looking more interesting, especially the small caps.

Other Important Articles Relating to the Week Ahead

1. The Economy and Earnings in the Week Ahead – July 16, 2012

2. The Past Week Stock Market Results – July 16, 2012

3. The Week Ahead in the Stock Market – July 16, 2012


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