Tuesday, February 2, 2010

Key Price Levels: Battle Lines Have Been Drawn

Now that the market has pulled back a bit, the proverbial bounce has commenced at the expected levels. Areas of support and resistance are noted on the charts as the battle lines have been drawn.

Key price levels are points where buying and selling are most likely to take place. With over 40 years of back tested data, I have defined these key price levels as a pivot point low occurring at a time when investor sentiment is bearish (i.e, bull signal). These key areas are shown with the red dots in figure 1, a weekly chart of the ETF proxy for the S&P500, the S&P Deposit Receipts (symbol: SPY). The trend channel has been broken. While the SPY has found support for now, I still contend that a better buying opportunity is ahead.

Figure 1. SPY/ weekly

A weekly chart of the Diamond Trusts (symbol: DIA) is shown in figure 2. DIA is stuck in "no man's land". It is neither at support nor resistance.

Figure 2. DIA/ weekly

Figure 3 is a weekly chart of the Power Shares QQQ Trust (symbol: QQQQ). Like SPY, QQQQ has fallen out of its trend channel.

Figure 3. QQQQ/ weekly

Figure 4 is a weekly chart of the i-Shares Russell 2000 Index (symbol: IWM). Looking at the oval at the right hand side of the chart, we note the breakout from the down sloping trend channel that failed at the 62.86 level; 57.80 seems like a better place to buy as this is the confluence of a key support level and the rising 40 week moving average.

Figure 4. IWM/ weekly

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