Indexes Need To See A Spike In Volume In Order To Move To Higher Ground (SPY, DIA, QQQ, IWM, INDEXSP:.INX)
Stocks meandered on Friday to end the session mixed. The session began on a positive note as stocks rallied but the afternoon session brought with it selling pressure and, for the most part, the day ended about flat. The small-cap Russell 2000 (NYSEArca:IWM) cooled off following Thursday’s big advance and ended the session down 0.3%. The Dow Jones Industrial Average (NYSEArca:DIA) closed fractionally lower, while the S&P MidCap 400 closed flat. Both the Nasdaq (NASDAQ:QQQ) and the S&P 500 (NYSEArca:SPY) managed modest gains of 0.2%.
Internals were mixed on Friday. Volume was down on the 7.2% on the Nasdaq and 16.7% on the NYSE. However, advancing volume edged out declining volume on the NYSE by 1.1 to 1 and on the Nasdaq by 1.3 t 1. Not much useful information can be gleaned from Friday’s price and volume action. The broad market continues to consolidate and will likely need to see a spike in volume in order to move to higher ground.
Despite Thursday’s bullish accumulation day, the market was unable to muster any follow through on Friday. A brief review of the S&P 500, DJIA, Nasdaq, small-cap Russell 2000 and S&P MidCap 400 should help to shed some light on the current state of affairs in the broad market. The S&P (INDEXSP:.INX) has formidable resistance at 1,370 but also has strong support at 1,350 and 1,340. The DJIA has a key resistance level at 13,015. The Nasdaq is finding 2,965 a difficult threshold to cross as it failed to hold this key mark two of the past four days. The S&P MidCap 400 has struggled with the 990 level. Three times in the past six sessions, the mid-cap index has been unable to rally above this key mark. The Russell 2000 is, in our opinion, showing the best price action of all of the major indices over the past three weeks as it has been building a base during this entire timeframe. If the Russell can clear 833, it should see a significant rally.
PPH and IYM both triggered on Friday and we now have open long positions in both. IAU continued to consolidate near the highs of its recent breakout. Although we remain bullish on the market, we are keenly aware that all of the major indices are at key resistance levels. Should another distribution day creep into the market early this week, we may consider reducing our long exposure.
Deron Wagner is a professional hedge fund manager who founded Morpheus Trading Group, a swing trader education firm, in 2002. He is the author of the best-selling book, Trading ETFs: Gaining An Edge With Technical Analysis. His new book, Advanced Technical Analysis of ETFs, will be released in August 2012. Past television appearances include CNBC, ABC, and Yahoo! FinanceVision. Wagner is also a frequent guest speaker at various trading events around the world, and can be reached by sending e-mail to: firstname.lastname@example.org.