Wednesday, June 3, 2009

Key Price Levels: June 3, 2009

Since early May, I have been expecting market weakness. The sentiment picture has been overly bullish, and inflationary pressures or expectations have been present as the trends in gold, crude oil and Treasury yields have been strong. These would be considered headwinds. Clearly at odds with this view of the market has been the price action, which has been nothing short of fabulous. Breakout levels have been re-tested and support has held. There is nothing wrong with that. My expectations have been trumped (so far) by market strength.

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. The break out from the 86.78 level has led to a break above the highly watched 40 week moving average. Support is at 90.48, and resistance comes in at around 97.

Figure 1. SPY/ weekly

A weekly chart of the Diamond Trusts (symbol: DIA) is shown in figure 2. The break out over various trend lines or resistance levels is noted within the gray oval. Support is at 82.64 although a weekly close below the 40 week moving average would dent the bullish case. 90 is the next level of resistance.

Figure 2. DIA/ weekly

Figure 3 is a weekly chart of the Power Shares QQQ Trust (symbol: QQQQ). The QQQQ is entering a resistance zone at 36.15, which essentially is the gap down area from October, 2008. On the other hand, the QQQQ is breaking out from the rising trend channel. I am not a big fan of this kind of breakout - i.e., a breakout from a rising trend line - and I generally associate this kind of breakout with an accelerated move that ends in a market top. I would prefer to see the QQQQ spend some time back in the channel before heading higher. After 36.15, the next level up is the down sloping trend line at 40.

Figure 3. QQQQ/ weekly

Figure 4 is a weekly chart of the i-Shares Russell 2000 Index (symbol: IWM). Price is now above the key price level at 47.58, the 40 week moving average and the pivot point at 50.13. 50.13 and the 4o week moving average become the support zone; we don't want to see a close below this level. Surprisingly, the September, 2008 gap down area at 60 becomes the next target.

Figure 4. IWM/ weekly

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