The ETFs: Higher for August!
by Ian Harvey
September 01, 2012
Stock investors found enough positives in the long-awaited comments from Fed Chairman Ben Bernanke last Friday to push stocks higher, as the major averages recouped most of the week’s losses.
For the month, the major averages were higher with the (Spyder Trust (ARCA: SPY) up 2.6%, the SPDR Diamond Trust (ARCA: DIA) up 1.1%, the PowerShares QQQ Trust (Nasdaq: QQQ) up 5.5%, and the iShares Russell 2000 Index (ARCA: IWM) gaining 5.3%.
However, it was a relatively flat for the past week in the stock market, as the indexes paused below recent highs. Three of the Exchange-Traded Funds (ETFs) recently made fresh 52-week highs, but have pulled off those levels. In order for the uptrend to continue, those levels will need to be exceeded. If they are not, the market bears may interpret the recent moves higher as a false breakout, and commence selling.
• The S&P 500 SPDRS (ARCA: SPY), made a recent 52-week high on August 21 at $143.09; this slightly eclipsed the April 2 high at $142.21. Since the new 52-week high was created, the ETF has been flat to slightly lower.
Short-term support is $140, and a drop below is likely to the send the price to test the trendline at $137.50. With an uptrend in place since June, there are multiple areas of support below the trendline, such as $135 and $132.50. Yet a breach of the trendline would warn this up-move is over.
Currently though, the trend remains higher. In order for the trend to continue, the ETF needs to climb back above $143.09. Based on the trend channel the ETF is in, if the move higher occurs, the next target is $145.
• The Dow Jones Industrial Average SPDR (ARCA: DIA) ETF is currently testing the upward sloping trendline after failing to exceed the May 1 52-week high on the most recent rally. The 52-week at $133.14 has so far proven to be an elusive mark, with the most recent up-move topping out at $133.02 (August 21).
The uptrend that began in June is now being tested, and a drop below $129 will break the trendline. This would warn of further declines. The next potential support is at $124 - a level that held up to multiple tests in June and July.
If the rally continues, the price will need to push through $133.04 and $133.14. If that occurs, the next target based on the ETF's trend channel is $134.25 to $135.
TOP OPTIONS TRADES SINCE JUNE 01, 2012
|HLF July 47.50 Calls||53%||APPL Aug 650 Calls||67%|
|DLTR Aug 110 Calls||32%||UIS Oct 17 Calls||79%|
|HSY Aug 70 Calls||56%||TSO Nov 25 Calls||54%|
|NKE Oct 92.50 Calls||49%||HLF July 47.50 Calls (again)||38%|
|FB Aug 25.00 Puts||500%||DISH Sept 30.00 Calls||100%|
|APPL Jan 13 650.00 Calls||71%||CSTR Oct 42.50 Puts||400%|
|LNKD Aug 92.50 Puts||30%||LNKD Aug 100.00 Calls||250%|
|SLV Nov 30.00 Calls||114%||JCP Nov 25.00 Calls||67%|
• PowerShares QQQ ETF (Nasdaq: QQQ), representing the Nasdaq 100 index, is still holding within close proximity to its recent 52-week high at $68.88 (August 21). The aggressive rally into that 52-week high, followed by a consolidation since then, has arguably created a flag formation. Flags are traditionally continuation patterns, but assuming the trend will continue, this can be dangerous.
A move back above $68.88 indicates another push higher is likely. Targets are $69.60 followed by $72.30. If the push higher doesn't come, a drop below $67 warns the price could fall to the upward sloping trendline, currently intersecting at $64.25.
• Russell 2000 iShares Index (ARCA: IWM) ETF, representing the Russell 2000 index, continues to trade in a more sideways, choppy fashion than the other index ETFs.
Recent rallies have fallen well short of the March 27 52-week high at $84.66. With the short-term high put in on August 21, the bias is to the upside though.
The higher swing high, in conjunction with the rising swings lows since June, means this ETF still has more buyers than sellers. Resistance is in the vicinity of $83, followed by $84.66. Support is at the trendline at $78, followed by $76 if the former is broken.
Conclusion for the ETFs
Despite the consolidation below recent highs, the index ETFs remain in uptrends. This is a pivotal area for stocks, as moves higher will confirm there is enough buying pressure to push the stocks well above the highs from earlier in the year. On the other hand, if buying does not pick up, traders will increasingly realize that the moves to new highs were false, and selling will likely enter the market.
There are a few sectors that are worth a consideration when buying. These include the retail sector, which has a strong seasonal bias into year-end, and some of the beaten-down large-cap stocks that have attractive yields.
Other Important Articles Relating to the Week Ahead
1. The Economy and Earnings in the Week Ahead – September 03, 2012
2. The Past Week Stock Market Results – September 03, 2012
3. The Week Ahead in the Stock Market – September 03, 2012
4. A Surprise September Rally, August 31, 2012
5. Stock Market Bulls and the VIX Promoting Caution – September 03, 2012
6. Calibrating Stock Charts – September 03, 2012