The
Weekly Report For July 20th - July 24th, 2009
July
19, 2009- Market Summary
The markets staged an impressive rally this week after
threatening to break down from last week's topping patterns. The
market kicked off the week with a rally in the financials following
an upgrade of Goldman Sachs Group (NYSE:GS)
by analyst Meredith Whitney, who also had some positive comments
on banks. Goldman Sachs followed up by posting an impressive earnings
report that topped estimates. Tech stocks, semiconductor stocks
in particular, helped the markets continue the rally on Wednesday,
following a positive reaction to an Intel Corporation
(Nasdaq:INTC)
earnings report. (For further reading, see Semiconductors
Emerging As Leaders.)
For the week,
the Nasdaq Composite gained 130.58 points (7.44%) and the Dow Jones
Industrial Average gained 597 points (7.33%). The Nasdaq erased
the entire loss from the June highs and the other indexes were able
to reclaim a large portion as well.
IN PICTURES:
7
Tools Of The Trade
Digging deeper
into the technical side, the major indexes were able to negate the
highly publicized head-and-shoulders
topping patterns that were forming. This could be an important
development, as many aggressive traders were caught shorting
this move, and may now be caught in a short
squeeze. Often the strongest moves follow a failed chart pattern,
as both sides of the trade scramble to adjust to the new trend.
The
Diamonds Trust, Series 1 (NYSE:DIA)
ETF, which
tracks the Dow
Jones Industrial Average, is showing a great example of how
a failed move can spark another burst in the opposite direction.
DIA broke under a head-and-shoulders pattern last week, but couldn't
manage any significant follow-through. It recaptured the neckline
on Monday, and never looked back. Key resistance looms near $89,
but it certainly looks like the bulls have regained control.
The
S&P 500 SPDRS (NYSE:SPY)
ETF was showing a similar topping pattern, it held a key support
level at $87. It bounced very sharply off that level, also negating
a head-and-shoulders topping pattern in the process. SPY remains
in a trading channel and has a critical resistance level near $95.
A move above this level would have intriguing bullish implications
for the market.
The iShares Russell 2000 Index (NYSE:IWM)
ETF also held a critical support level near $47, respecting its
prior breakout area. It held above its 200-day moving average and
managed to snap back over its rising 50-day moving average as well.
It appears a test of the upper boundaries of the established trading
range is coming soon. A sustained move above $53-$54 would signal
a very positive bullish development.
The Powershares QQQ ETF (Nasdaq:QQQQ)
has shown relative
strength versus its peers as tech stocks continue to assume
a leadership role. QQQQ threatened to break down from a small double
top last week, but quickly bounced back into its base, much like
the other index ETFs. It was able to clear the prior high and closed
above an important resistance level Friday at $37.56. The semiconductors
cleared important bases earlier in the week and hinted that the
tech-laden ETF would follow up with a similar move.
Bottom Line
While the technical picture for the markets is certainly looking
much improved over last week, traders should be aware that there
are still some flashing warning signals. While the MACD histogram
indicator has turned positive, it is still making lower highs as
the markets trade higher. This warns of slowing momentum, and highlights
the fact that the markets have yet to stage a healthy correction
since the rally began in March. Keep an eye on the resistance levels
mentioned, and whether a move above them can be sustained. The possibility
still exists for a bull trap to be set, much like the recent failed
head-and-shoulders bear trap. If these levels are cleared decisively,
they should become important support levels moving forward.
(To learn more
about levels of resistance, be sure to check out the Support
And Resistance section of our Technical
Analysis Tutorial.)
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