Key Price Levels: May 14, 2009

Since April 19, 2009, I have been advocating "to sell strength and tighten up stops". I always try to provide some context that are the basis for my opinions. While the "sell call" may have seemed early, the S&P500 is now with 1% of those levels seen back on April 17, 2009, and the sell signal has not behaved any differently than past signals. It is just difficult to the nail the top.

In any case, the bear market rally continues, and the bulls are hoping that the recent weakness is nothing more than the pause that refreshes. I suspect that it will be something more as the price cycle needs to recruit more bears before heading meaningfully higher. This means we should see lower prices. I doubt we will get the weakness all at once as there are some key support areas that won't be broken too easily to the downside. I doubt we will get the weakness all at once as the Fed and Treasury will do whatever they can to juice the markets with well timed announcements as to why such and such program is now needed. Hope springs eternal that eventually one of these programs will do the trick.

Please review the methodology and the significance of the key price levels by clicking on this link.

A weekly cart of the S&P Depository Receipts (symbol: SPY) is shown in figure 1. Support is at 86.78, and resistance is the down sloping 40 week moving average. I would expect a range between these two "extremes".

Figure 1. SPY/ weekly

A weekly chart of the Diamond Trusts (symbol: DIA) is shown in figure 2. The breakout above 82.64 is still intact, and this is support. On the upside, the down sloping 40 week moving average is resistance. Like the SPY, I would expect a range, and resolution of this range should provide more clarity.

Figure 2. DIA/ weekly

Figure 3 is a weekly chart of the Power Shares QQQ Trust (symbol: QQQQ). A more significant pull back will find prices at the 30.33 support level. Resistance is at 36.50.

Figure 3. QQQQ/ weekly

Figure 4 is a weekly chart of the i-Shares Russell 2000 Index (symbol: IWM). The breakout from several weeks is still holding (just like the SPY and DIA). Support is at 47.58 with resistance being the down sloping 40 week moving average.

Figure 4. IWM/ weekly