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The Weekly Report For April 30th - May 04th
May 06, 2012


Commentary:



S&P 500 SPDRS has been in a strong uptrend since October and remains in that uptrend despite the recent spurts of selling seen in April and now May. The key level to watch in this ETF is the April 10 low at 52-week high at $142.21 is likely to be tested. This latter scenario could take two weeks or more to develop, assuming prior mentioned support is not broken in the mean time.



Dow Jones Industrial Average SPDR (ARCA: href="http://lists5.investopedia.com/t/1703641/29447800/8638/19/">DIA) created a new 52-week high on May 1 at $133.14 indicating there is still strength here. One issue that was addressed in prior market summaries, though, is the possibility that this pair could be within an expanding range. The April 10 low was below the March 6 low, and now we are seeing a retreat off the newly established 52-week high. When incremental breakouts occur but are quickly reversed, trend following strategies (on short time frames) become harder to employ. Therefore, the area between $133.14 and $126.92 (April 10 low) is a "no man's land" and false href="http://lists5.investopedia.com/t/1703641/29447800/8640/21/">QQQ)

 PowerShares QQQ ETF (Nasdaq: href="http://lists5.investopedia.com/t/1703641/29447800/8641/23/">Simple Strategies For Capitalizing On Trends



Russell 2000 iShares Index (ARCA: href="http://lists5.investopedia.com/t/1703641/29447800/8642/25/">IWM) ETF, representing the Russell 2000 index, has a well-tested support level at $78. As the ETF has moved laterally for more than three months, $78 has been tested on multiple occasions and so far has held up. Given that the ETF is already weak compared to other index ETFs (mentioned above) a drop below $78 is likely to be a significant event--the target of which is $72. Support along the way is at $76 which is also a significant level and should be watched closely as the price could bounce off of it. Upside potential in this ETF remains muted as it continues to move sideways. If the other ETFs manage to gain traction next week there is one potential trade in IWM and that is to go long near support anticipating the range will continue. Stops can be kept quite tight just below $78 with a target near $82. Though if weakness continues in all the ETFs, this one could be hit fairly aggressively to the downside.



Bottom Line

The selling seen on May 4 to close out the week could spook some investors and traders. The important thing to remember though is that the trend is still up in the S&P 500 and Nasdaq 100 and arguably the Dow Jones Industrial Average. Therefore, until support is broken, there are potential buying opportunities on these pullbacks. Ultimately, if major support levels are broken, there is the potential for further downside into the targets mentioned. Upward pressure near current levels present low-risk opportunities (as relatively tight stops can be used) for picking up relatively strong index ETFs and stocks.
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