Monday, January 19, 2009

Key Price Levels: January 20, 2009

Mixed and inconsistent price action of the past couple of weeks turned to very poor price action this past week. For the second week running, support levels were decisively broken in the SPY (S&P500 proxy) and DIA (Dow Industrial proxy); the IWM (Russell 2000 proxy) broke its most immediate support level. Only the QQQQ (NASDAQ 100 proxy) held at support (just barely).

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 support level at 86.78, which seemed to be the key level for weeks, did not hold. This is now resistance. As expected, the break of support has led to a test and a bounce at the next support zone between 81.17 and 82.61. No surprise here. However, based upon the sentiment picture and the poor price action, I would not be surprised to see the November, 2008 lows retested.

Figure 1. SPY/ weekly

Figure 2 is a weekly chart of the Dow Jones Industrial ETF proxy, the Diamond Trusts (symbol: DIA). The DIA closed below the pivot at 82.97 and above the pivot at 82.64 (by 5 cents). However, when you connect these pivot points with the maroon colored trend line, you see the result-- a trend line break. This is bearish. Period! Historically, trend line breaks of such pivot points have implied increasing risk as prices can accelerate lower. On the other hand, reversals of these break downs do occur and are generally bullish. For now, we should respect the price action, and this is a breakdown and it is bearish.

Figure 2. DIA/ weekly

Figure 3 is a weekly chart of the Power Shares QQQQ Trust (symbol: QQQQ). This past week prices remained between the most immediate support zone; this is between 29.72 and 29.36. This is still bullish and still a "normal" pullback, but the QQQQ is barely hanging in there.

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 has given way and is now resistance. Price are destined to hit the next support zone at 42.48.

Figure 4. IWM/ weekly

The price action has degraded over the past weeks. Support zones have not held, and the November, 2008 lows are now in sight.

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