Key Price Levels: January 12, 2009

As suggested in the previous articles on sentiment, selling pressure materialized last week as none of the major indices could clear resistance levels. The SPY (S&P500 proxy) and DIA (Dow Industrial proxy) broke supports levels suggesting weakness; the QQQQ (NASDAQ 100 proxy) and IWM (Russell 2000 proxy) held at support levels.

To review the methodology and the significance of the key price levels please click on this link.

My interpretation of the SPY chart (see figure 1) is as follows: the 90.13 support level held all week until the last hour of trading on Friday. A weekly close below this level implies technical weakness and this should be concerning for the bulls. Old support is now resistance. The next support level (and likely the most important one) is at 86.78.

Figure 1. SPY/ weekly

Figure 2 is a weekly chart of the Dow Jones Industrial ETF proxy, the Diamond Trusts (symbol: DIA). Like the SPY, the DIA closed below a support level at 88.36; this is now resistance and a likely place where there will be selling pressure. The next level of support is at 82.64.

Figure 2. DIA/ weekly

Figure 3 is a weekly chart of the Power Shares QQQQ Trust (symbol: QQQQ). This past week prices remained above the most immediate support zone; this is between 29.72 and 29.36. This is still bullish and still a "normal" pullback. A weekly close above 31.06 would likely see prices fill the October, 2008 gap at $36.

Figure 3. QQQQ/ weekly

Figure 4 is a weekly chart of the i-Shares Russell 2000 Index (symbol: IWM). The support zone between 47.58 to 48.26 remains intact. A weekly close below this level would likely send prices to the next support zone at 42.48. A weekly close above 50.50 would likely send prices to the October, 2008 gap at $61.

Figure 4. IWM/ weekly

The positive price action of the prior week has turned to mixed price action this past week. I use the word "mixed" because support levels on the QQQQ and IWM held, but on the SPY and DIA, support levels did not. I guess all that other stuff -like the secondary indicators such as volume, news flow, economic fundamentals and sentiment - does matter.

Lastly, figure 5 is a daily chart of the SPY showing the short term oscillator constructed from various breadth and sentiment metrics. This is an over sold market. I would expect prices to bounce as the bullish case is always hard to extinguish, but it is my expectation that "selling strength" is the best course of action.

Figure 5. SPY/ daily