See It, Market: Spiders, and Diamonds, and Q’s! Oh my!

stock market, stock chart, technical analysis, investingOver the past five years, financial markets have experienced unparalleled volatility and market swings.  From the 60% decline into the 2009 lows to a roughly 100% rise at the 2011 highs, it has been a wild ride.  We have witnessed ponzi schemes, bailouts, bank stress tests, zero rate fed policy, heavy regulation, a “fat” finger, and metal-mania, to name a few.  Feels like we have seen it all… and many of us probably aged two or three fold having lived through it!  But, as they say, these are interesting times… and times that we can learn, and profit, from.

Zooming in on the current market set up, it is apparent that the major financial indices are taking a much needed rest.  Question is, will this pullback evolve into the correction that many investors believe is long overdue?  Or will a little rest and regroup give the markets time to make another run at the highs?  To better anticipate the markets next move, we’ll need some assistance; a little technical and fundamental color on each the major market index funds: The Powershares QQQ Trust (QQQ), the SPDR Dow Jones Industrial Average (DIA), and the SPDR S&P 500 (SPY), known also as the Power Q’s, Diamonds, and Spyders.

Focusing on the tech heavy Power Q’s (QQQ), it is apparent that this market index favorite (and leader) has started to lose steam.  After failing to extend a reverse head and shoulders breakout, the index fund has retreated to a testy support area with little relative strength (RSI).  Be that as it may, the bulls should be able to muster a rally from this area, as tech is clearly oversold and in need of some breathing room.  So, will it be a paws or claws?  Well, the news flow from techland will need to get better if any lift is to evolve into a lasting rally.  Current news flow and earnings reports from tech bell weathers like Cisco Systems (CSCO) and Hewlett-Packard (HPQ) have hurt tech.  And merger and acquisition news such as Microsoft (MSFT) acquiring Skype haven’t proven to be a strong catalyst as of yet.

The Spyders (SPY) have a similar feel, but a slightly different technical set up.  A quick recapture of the 135 area (and rising) would be a strong indicator that the bulls aren’t going away without a fight.  This seems a bit unlikely, though, as technicals are weakening and two key S&P sectors, energy and financials, are underperforming.

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The Diamonds (DIA) are in the best shape.  But, again, news flow has been a rally killer.  Shaky news out of the housing sector and recent earnings from Lowe’s (LOW) and Wal-Mart (WMT) have damaged market trust.

So, here we are again.  Staring at another 3 percent pullback and wondering if this is actually the end of the market joy ride.  Although “buying the dips” has a strong track record, my gut says “sell the rips.”  Volatility has increased and this often times precedes a pullback.  Probably time to get your defense on the field.  Happy investing.


Previously published as a blog by Minyanville.


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No positions in any of the securities mentioned at time of publication.

Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.