Today’s ETF technical picture

The markets wrapped up last week with
a wild session of volatility that resulted from the recent tug-of-war
between the bulls and bears. The bulls quickly stepped in after stocks gapped
lower on the open, enabling the major indices to surge upwards and test their
key resistance levels into the early afternoon. As of 2:00 pm EST, the Nasdaq
was trading at a seven-week high and the S&P 500 was at its 52-week high, but
the bears promptly sold into the intraday strength during the final hour of the
session. By day’s end, the major indices had finished where they opened, in
negative territory, and in the bottom third of their intraday ranges. The Nasdaq
Composite
(
COMP |
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Chart |
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PowerRating) fell 0.4%, the S&P Midcap 400
(
MDY |
Quote |
Chart |
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PowerRating) 0.3%, and both the
S&P 500
(
SPX |
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Chart |
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PowerRating) and small-cap Russell 2000 lost 0.2%. The Dow Jones Industrial
Average
(
DJX |
Quote |
Chart |
News |
PowerRating) was unchanged.

Total volume in the Nasdaq increased by 12% over the previous
day’s level last Friday, causing the Nasdaq to register a bearish "distribution
day." Conversely, turnover in the NYSE declined by 12%, preventing the S&P from
registering a third "distribution day" for the week. In the March 3 issue of

The Wagner Daily,
we discussed how the Nasdaq had been showing more bullish volume patterns than
the S&P, but Friday’s day of institutional selling in the Nasdaq changed that.
Both indices had two "distribution days" last week, although the Nasdaq also
managed one "accumulation day" as well.

In Friday’s newsletter, we took an updated look at the
performance of individual sector ETFs we had been following. Today, we will
discuss the current technical situation of the major broad-based ETFs as well.
Let’s begin with looking at a daily chart of SPY, the keystone ETF that mirrors
the performance of the S&P 500 Index:

As you can see, SPY rocketed up to test its February 27 high
last Friday, but promptly reversed after trading only 3 cents above it. SPY
finished the day only 11 cents off its intraday low and also formed a bearish
"inverted hammer" candlestick (circled above). Although Friday’s action was
bearish, the bigger picture still shows that SPY is stuck in the middle of a
two-week trading range. In fact, SPY closed at 128.81 on the week ending
February 17 and closed at 128.76 last week. It’s easy to see that the S&P has
been very choppy and indecisive over the past two weeks, but we expect a break
out of the recent volatility contraction, either up or down, in the coming week.
While it is bullish that the S&P has been consolidating near its 52-week high
for the past two weeks, both the recent volume patterns and failed breakout
attempts on February 27 and March 3 are bearish; hence the erratic action on
Friday. One thing, however, is certain. The longer volatility contracts, the
stronger the eventual range expansion will be, so be on guard for a substantial
move in the coming week.

QQQQ, the ETF that mirrors the Nasdaq 100 Index, probed above
its recent trading range last Friday, but closed back in the range and only 6
cents above its intraday low:

Like SPY, the Q’s also finished the week with an "inverted
hammer" candlestick on its daily chart. But more importantly, QQQQ has been
unable to hold above resistance of its 50-day moving average. Looking at the
chart above, notice how the 50-MA has acted like a brick wall over the past
week. Obviously, Friday’s failed breakout above the range and the 50-day MA left
a lot of overhead supply in its wake. Furthermore, unlike SPY, QQQQ still
remains well off its 52-week high. As such, we feel it will be difficult for
QQQQ to break higher and out of the range in the near future. A more likely
scenario is that the Q’s will fall back down below its 20-MA and retest its
February low in the coming weeks. A break of the February 28 low of 40.97 should
confirm this. For an accurate leading indicator in the Nasdaq, we recommend
following the price action in the Semiconductor Index ($SOX), as this has been
the main sector holding the Nasdaq up. Remember also that QQQQ mirrors the
Nasdaq 100 Index and not the broader-based Nasdaq Composite. ONEQ is the
relatively unknown ETF that mirrors the Composite Index.

Finally, take a look at the daily chart of DIA, the ETF that
tracks the blue chip Dow Jones Industrial Average:

The long tail (or wick) on the "inverted hammer" candlestick
above tells us it was a wild roller-coaster ride in the Dow last Friday as well.
The Dow showed the most relative strength of the three major indices last month
because it was the only one that had broken out to a new multi-year high.
However, the Dow finished last week below new support of its prior high from
January 11. Therefore, we need to be on alert for a potential failed breakout to
that new high. For now, the 20-day MA is providing support, but a fall below
that level could trigger the downward momentum that typically results from
failed breakouts.

For those of you who are new to candlestick charting and don’t
have any idea what an "inverted hammer" is, we recommend you check out the

free
tutorial on StockCharts.com. We have no affiliation with that site, but the
free educational material there is quite nice.