Monday, February 23, 2009

Key Price Levels: February 23, 2009

From the January 20, 2009 "Key Price Levels" I wrote the following about the Dow Jones Industrial ETF proxy, the Diamond Trusts (symbol: DIA): "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. " Since that time 24 trading days ago, the DIA is down about 12%. That's 0.5% loss on average per trading day - I would call that an acceleration of prices lower.

Before turning to a chart of the SPY (S&P500 proxy), please review the methodology and the significance of the key price levels by clicking on this link.

My interpretation of the SPY (S&P500 proxy) chart (see figure 1) is as follows: prices never could clear our resistance level at 86.78; this had remain resistance for weeks. The weekly close below the support levels at 82.61 and 81.17 implied increasing risk and an acceleration of prices lower, and the fact that prices are out of the trend channel could really accentuate this dynamic (personal observations). The low from October, 2002 -not a misprint- is at 76.72. Will the market remember these levels? As the price action seems to be unfolding like the DIA in mid-January, the November, 2008 low (74.34) is beckoning.

Figure 1. SPY/ weekly

Figure 2 is a weekly chart of the Dow Jones Industrial ETF proxy, the Diamond Trusts (symbol: DIA). This nicely illustrates my point as the DIA falls out of its trend channel. The October, 2002 low is at 71.81.

Figure 2. DIA/ weekly

Figure 3 is a weekly chart of the Power Shares QQQQ Trust (symbol: QQQQ). This is our "best" performer on a relative basis of course, and the breakout from several weeks ago turned into a fake out, and prices are now back in the channel. The lows at 27.63 are a likely target.

Figure 3. QQQQ/ weekly

Figure 4 is a weekly chart of the i-Shares Russell 2000 Index (symbol: IWM). IWM is still within it's trend channel and holding (on a weekly closing basis) above the significant support level at 40.73. A weekly close below this key level is another ominous sign.

Figure 4. IWM/ weekly

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