The Major ETFs in the Week Ahead October 15, 2012

ETFs: Worst Weekly Loss Of The Past Four Months!

by Ian Harvey

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October 13, 2012

Introduction

The United States markets moved lower this past week, despite some positive economic news. Jobless claims fell to 339,000, which was lower than the 370,000 figure that economists forecasted. But instead of a boost, the markets proved to be a bit more skeptical this time around, as the improvement could be attributed to more unemployed giving up on their job search entirely.

Global markets were likely responsible for most of the decline in the U.S., and the ETFs. Optimism surrounds the 'European Central Banks - ECB's unlimited debt buying program appears to have waned, while the IMF issued a stern warning that sent markets lower, particularly the ETFs, saying that austerity is not the answer. In Asia, the World Bank didn't help things either, saying that the region's economies won't grow as much as expected.

These concerns about Asian growth and uncertainty in Europe were the primary drivers of this week's decline in U.S. stocks.


For some of the ETFs, it was the worst weekly loss of the past four months. The Spyder Trust (ARCA: SPY) has declined for three out of the past four weeks, but is still only down 3.4% from the highs.

The Outlook for the Major ETFs

The S&P 500 SPDRS (ARCA: SPY) closed near the week’s lows, as the late September low of $142.95 was broken along with the uptrend (line e). The break of the trend line often does not mark a top, but is more likely a warning that new highs should be watched closely.

The 38.2% 'Fibonacci’ support at $140.22 corresponds nicely to the late August low. A drop to this level would be a 5.3% decline from the September high. The 50% support is at $137.73, which would be expected to be the maximum downside for a correction.

The S&P 500 Advance/Decline (A/D) line is still acting weak, as it dropped back below its WMA the previous week and is now testing its support (line g). There is initial resistance at the October highs, with more important at line f.


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TOP OPTIONS TRADES SINCE JULY 01, 2012

TRADE GAIN TRADE GAIN
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%
GLD Nov 165.00 Calls 72% LVS Dec 45.00 Calls 67%
GLD Oct 170.00 Calls 52% MON Jan 2013 87.50 Calls 26%

The Dow Jones Industrial Average SPDR (ARCA: DIA) ETF was down close to $3 last week, and also dropped below the September low of $133.36. The next good support is at $130.24, which is the 38.2% Fibonacci support level. There is additional support now in the $127.50 to $128 area and the weekly uptrend (line b).

The weekly relative performance or RS analysishas improved over the past few weeks, but is still well below its long-term downtrend (line c). The RS line dropped below its WMA in July, indicating that the Dow was underperforming the S&P 500.

The On-Balance Volume (OBV) has been acting stronger than prices, and does show a pattern of higher highs since the October 2011 lows. There is a longer-term divergence, as it is still well below the lows made in early 2011. The OBV is now testing its WMA.

The Dow Industrials A/D line (not shown) has dropped below the late September lows, but is still well above the lows made in late August.


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PowerShares QQQ ETF’s (Nasdaq: QQQ), representing the Nasdaq 100 index, did manage to close higher Friday, after getting hit hard early in the week. It has dropped over 5% from the highs made last week.

The 38.2% support from the June lows at $66.51 has not been reached, with the 50% support next at $65.27.

The Nasdaq-100 A/D line (not shown) has made lower lows, but is still above the support from July. There is first chart resistance now at $67.50, with stronger in the $68.50 to $69 area.


The decline in Apple (AAPL) has accounted for most of the decline in QQQ. The seasonal chart shows that it typically bottoms on October 5 and forms a major seasonal high on May 11. The stock stabilized Friday.



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Russell 2000 iShares Index (ARCA: IWM) ETF, representing the Russell 2000 index, has declined for the past four weeks, after peaking at $84.18 in the middle of last month. There is next strong support in the $80 to $81 area and the uptrend (line f).

A decisive close below $80 would suggest that the strength in early September was not a change in trend for the small caps. The next good support is in the $78 area.

The relative performance broke through its downtrend and WMA in early September before reversing. In now needs to move back above its WMA to indicate that a bottom is really forming.

The weekly on-balance volume (OBV) is still holding above its WMA and good support from earlier in the year. The Russell 2000 A/D line (not shown) has also reversed and dropped below the late September lows last week, but is still well above its uptrend from the June lows.

Good resistance for IWM waits in the $83.50 to $84 area.


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Conclusion for the ETFs

The major U.S. indexes, particularly ETFs have moved lower over the past week as a result of negative news out of Asia and the European Union. While some employment figures have been positive, the market is awaiting confirmation of a jobs recovery before becoming too bullish. As a result, traders should watch for industrial production and jobless claims data closely in the week ahead.

Other Important Articles Relating to the Week Ahead

1. The Economy and Earnings in the Week Ahead – October 15, 2012

2. The Past Week Stock Market Results – October 15, 2012

3. The Week Ahead in the Stock Market – October 15, 2012


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