October 15, 2009: The four major equity indexes — Dow, S&P 500, NASDAQ 100 and Russell 2000– are at resistance areas increasing the chances of a correction. For the markets to move higher they have to break out of the resistance levels.
Let us look at the exchange traded funds (ETFs) that track the major indexes. They are SPY for the S&P 500, QQQQ for the NASDAQ 100, DIA for the Dow and IWM for the Russell 2000. Please check the charts below along with the report.
First let’s look at QQQQ. Notice that the prices are hitting a former support area, which has now turned to resistance. It’s marked by the yellow horizontal line. Notice that four weeks ago prices touched that area and dropped.
The charts of DIA and SPY are even more interesting as there is a confluence of resistance factors. On both the ETFs, prices are nearing an area of former support, which can now be resistance. Also DIA is nearing an open gap and SPY is closing a gap. Remember are gaps areas where there is a lack of buyers or sellers. In the case of DIA and SPY a lack of buyers led to the gap down in prices last year. Hence, when prices return to the area where there is a lack of buyers, we may see the ETF’s turn down.
IWM is slightly different story. The gap on the ETF was closed a few weeks ago that led to a fall. Now prices are coming back up to the gap closure level. With the other major ETFs at resistance, we may see a pull back on the IWM too.
We would take our profits now on the long positions and put on some short positions. We would put our stop loss for the short positions a little above the blue boxes shown on the charts of IWM, SPY and DIA. In case of QQQQ the stop would be a little above the horizontal line.
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