Key Price Levels: July 23, 2009

It has been almost a month since we last looked at the key price levels. For the most part, key support levels held several weeks ago. This week, we can describe the price action as a "melt up". Nonetheless, resistance levels are looming overhead.

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

A weekly chart of the S&P Depository Receipts (symbol: SPY) is shown in figure 1. The 86.78 level and the 40 week moving average provided support, and the intraday low several weeks ago was at 87. The close over the negative divergence bar (price bar marked in pink) has led to the "this time is different" scenario. Prices are melting up as traders cover short positions. $100 is the target. This is a 1000 on the S&P500. This is a nice round number and it happens to coincide with the down sloping trend line formed by two key pivot low points; this trend line broke down back in October, 2008. In addition, this would represent a 38% retracement of the down move from the October, 2008 top to the March, 2009 lows.

Figure 1. SPY/ weekly

A weekly chart of the Diamond Trusts (symbol: DIA) is shown in figure 2. This was the mother of all fake outs. The DIA broke below support levels at 82.64, and this also happened to be a close below the negative divergence bar. Prices were expected to be lower, but a quick reversal and a close back above the negative divergence bar has prices at the $90 level. Dow 9000! It has been that quick. The next minor level up is at 93.28, which is the high of the positive divergence bar (marked in red). The gap at 100 or Dow 10,000 needs to be filled; this seems improbable, but let's not put it past the market to show us all what we can't obviously see - the economy has recovered!! (sic)

Figure 2. DIA/ weekly

Figure 3 is a weekly chart of the Power Shares QQQ Trust (symbol: QQQQ). The weekly close over the negative divergence bar is leading to a melt up and I believe that $40 would the price target. This would be the down sloping trend line draw from the October, 2008 top. In addition, this would represent a 50% retracement of the down move from the October, 2008 top to the March, 2009 lows.

Figure 3. QQQQ/ weekly

Figure 4 is a weekly chart of the i-Shares Russell 2000 Index (symbol: IWM). The IWM closed below the prior negative divergence bar, but it found support 47.58 and the 40 week moving average, which was a key level. Then prices reversed and the close over the negative divergence bar has catapulted prices higher. IWM has the potential to get to 60, which would fill the gap from the October, 2008 breakdown. This would be the biggest percentage gainer of the 4 ETF proxies sited in this article, and I guess this is expected as investors will undoubtedly seek the most volatile instruments yielding the highest return.

Figure 4. IWM/ weekly