Trading the Technicals in the Major Averages
After a very strong June, the market still appears to be in a very bullish period based on the technical outlook. Below are technical analyses of four ETFs that track the major market averages.
SPDR S&P 500 ETF (NYSE: SPY): This fund has surged around 6.40 percent over the last month. In addition, the ETF is trading above its 20-day, 50-day and 200-day moving averages and has a relative strength reading of more than 61. Traders could buy SPY with a stop below the 50-day moving average, which would come into play roughly 2.70 percent lower than current levels.
SPDR Dow Jones Industrial Average ETF (NYSE: DIA): Over the last month, this ETF has added almost 7 percent. Moreover, the fund remains in a near-term uptrend. DIA is solidly above its 20, 50, and 200-day moving average and has a relative strength reading of nearly 61.
PowerShares QQQ Trust ETF (NASDAQ: QQQ): This fund, which tracks the performance of the Nasdaq 100, has risen roughly 6.60 percent over the last month and is also trading above its moving averages. The QQQ has a relative strength reading of over 60 and has broken through trend-line resistance in recent days. Traders could get long the QQQ and use the 20-day moving average as a stop-out point.
iShares Russell 2000 Index ETF (NYSE: IWM): This fund tracks the performance of the small-cap Russell 2000 and is outperforming peers. This outperformance may be an indicator that risk-appetite in the very near-term remains high. Over the last month, the IWM has risen 9.5%. The ETF has a relative strength reading of over 66 and has broke out above trend-line resistance in recent days.
Despite the June rally, considerable skepticism remains in the market. This skepticism could be a bullish sign for contrarian investors. For the week ending July 4, the popular American Association of Individual Investors (AAII) sentiment survey showed that only 32.6 percent of investors were bullish, while 33.3 percent were bearish. The other respondents said that they were neutral on the future direction of the market. The long-term average is 39 percent bullish respondents. Frequently, following a rally, bearish sentiment suggests that the market could continue to go higher as additional investors become bullish.
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