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October 2, 2009, Market Summary
Posted: Oct 02, 2009 15:48 PM by Joey Fundora
Filed Under: 401K,Accounting,Accounting,Active Trading,Alternative Investments,Banking,Bear Market,Brokers,Bull Market,Business,Buzz Words,Buzz Words,Chartered Financial Analyst - CFA,Commodities,Day Trading,Economy,ETFs,ETFs,Financial Theory,Forex,Fundamental Analysis,Futures,Hedge Funds,Index Fund,International Markets,Investing Basics,Investment,Investor Relations,IPOs,IRA,Mutual Funds,Options,Personal Finance,Portfolio Management,Recession,Regulations,Series 24,Series 26,Series 6,Series 63,Series 65,Series 66,Series 7,Short Selling,Stock Analysis,Stock Analysis,Stock Analysis,Stock Analysis,Stock Analysis,Stock Analysis,Stocks,Stocks,Students,Swing Trading,Technical Analysis,Technical Analysis,Underwriting,Venture Capital,Warren Buffett,Young Investors
Last week, we mentioned that several cracks were appearing in the markets, and a cautious approach was warranted at this juncture. This week, the markets followed through on last week's pullback with a very sharp four-day decline. While the markets actually kicked off the week with a sharp bounce on Monday, they ended up reversing that and undercutting the last three weeks' lows. The general indexes ended up traveling down to their rising 50-day moving averages by Friday, which staved off the selling for at least one day. This was their first such trip to the 50-day moving average in a few months and could be a sign of a deeper correction.
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In looking at the chart for the S&P 500 as represented by the S&P 500 SPDRS (NYSE: SPY) ETF, there are many similarities with the correction that began in June. After a break to new highs, a steep reversal set in, which easily undercut the 20-day moving average. At this juncture, the steepness of the decline, combined with the increase in volume, hints at further weakness. If you measure the most recent rally from the July low to the September high and calculate some Fibonacci retracement levels, it appears that there are a couple of key levels that also coincide with lateral support from the recent price action. If this correction were to give back one-third of the recent rally (which is typical of a normal healthy pullback), then a key level to watch would be near the $100 price level. If this is the beginning of a much deeper correction, then the other level that could offer key support would be near $95.
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| Source: StockCharts.com |
The Diamonds Trust Series 1 (NYSE:DIA) ETF, which tracks the Dow Jones Industrial Average also has a similar level to watch. It appears that a trip to test the $92 level is likely, although there could be much vacillation over the next few sessions as the bulls and bears jockey for position. At his point, the overall trend remains higher, but the short-term charts are transitioning to at least a trading range bound by the recent highs and the August or September lows.
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| Source: StockCharts.com |
The iShares Russell 2000 Index (NYSE:IWM) ETF has already come close to a full one-third retracement of the prior rally. This pullback has come on substantially higher volume as shown on the chart below. While it appears that IWM is pausing at the current levels, a test of the 50% retrace may be forthcoming, which also coincides with the August and September lows.
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| Source: StockCharts.com |
The Powershares QQQ ETF (Nasdaq:QQQQ) has continued to outperform the other market ETFs, although it is also pulling back to a rising 50-day moving average. It is still above the August breakout level, and well above the September lows, which remain a key area to watch. Volume has also been rising on the decline, so despite remaining stronger than other groups, it appears that QQQQ is still susceptible to a deeper correction. The low- to mid-$40s would be the first level to watch for signs of support, followed by the $39 level.
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| Source: StockCharts.com |
Bottom Line
It appears that the markets have begun a much anticipated correction during a seasonally weak period. It will be interesting to see if the obvious move is a head fake, but at this point the charts are signifying some more weakness ahead. This does not mean the markets have transitioned to downtrends, but more likely, that a period of range-bound price movement is on the way. Much will depend on how the markets react to the support and resistance levels.
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At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.
By Joey Fundora
Joey Fundora is an independent trader located in South Florida. Joey focuses on using technical analysis techniques to uncover supply and demand imbalances in equities. To see more of his work, visit his site on Stock Chart Analysis.
Filed Under: 401K,Accounting,Accounting,Active Trading,Alternative Investments,Banking,Bear Market,Brokers,Bull Market,Business,Buzz Words,Buzz Words,Chartered Financial Analyst - CFA,Commodities,Day Trading,Economy,ETFs,ETFs,Financial Theory,Forex,Fundamental Analysis,Futures,Hedge Funds,Index Fund,International Markets,Investing Basics,Investment,Investor Relations,IPOs,IRA,Mutual Funds,Options,Personal Finance,Portfolio Management,Recession,Regulations,Series 24,Series 26,Series 6,Series 63,Series 65,Series 66,Series 7,Short Selling,Stock Analysis,Stock Analysis,Stock Analysis,Stock Analysis,Stock Analysis,Stock Analysis,Stocks,Stocks,Students,Swing Trading,Technical Analysis,Technical Analysis,Underwriting,Venture Capital,Warren Buffett,Young Investors
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