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Powerful Pivots Identify ETF Highs

By: Minyanville
Posted: 8/16/2013 4:35:00 PM
Referenced Stocks: CSCO;SPY;WMT;XLU;XLY

The earnings from Cisco Systems ( CSCO ) and Wal-Mart ( WMT ), combined with higher rates spurred by better unemployment numbers, caused the heaviest stock market selling in quite some time. All the major sectors closed lower with seven losing more than 1%.

The decline was consistent with the deterioration in the technical studies that has been evident over the past few weeks. There was a divergence between the number of stocks making new highs and new lows, and the new lows spiked to 375 on Thursday.

The McClellan Oscillator has dropped to -228, which is a moderately oversold level. This does increase the odds of a rebound in the next week or so.

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In my outlook for August , I continued to recommend taking profits as the market was moving higher; using the quarterly pivot point analysis in combination with starc bands can be a good way to identify profit-taking levels. In early July, I provided a table of third-quarter pivot levels to save for future reference.

I have now also added the third-quarter highs for each of the ETFs , and only the Select Sector SPDR Utilities (NYSEARCA:XLU) has not reached its quarterly R1 resistance. Four of the ETFs have come within 1-2% of their R2 resistance levels before they reversed this week.

During the current market correction, it will be important to keep an eye on the quarterly pivot levels, which is at $161.01 for the Spyder Trust (NYSEARCA:SPY). They should provide an important level of support. Three of the four ETFS featured below were up over 8% at their quarterly highs.

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Chart Analysis: The Select Sector Consumer Discretionary ETF (NYSEARCA:XLY) exceeded the quarterly R1 resistance at $59.01 in early July.

The Select Sector SPDR Health Care ETF (NYSEARCA:XLV) was one of my favorite sectors for 2013 , and it hit a high of $51.50 on August 1, which was just 2% below the quarterly R2 at $52.52.

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The iShares Russell 2000 Index (NYSEARCA:IWM) made a high of $105.63 on August 5, which was a gain of 8.9% for the quarter.
ProShares QQQ Trust (NYSEARCA:QQQ) closed well below its 20-day EMA Thursday after it made a new rally high at $77.27 on Tuesday.
What It Means: Thursday's sharp decline likely confirms that the stock market is in the top-building process. Given the weakness in the market internals, a rebound is likely by early next week.

Unless the A/D ratios are very strong on the rally, it should set up a good buying opportunity in the inverse ETFs for either a trade or to hedge your existing equity positions.

Editor's Note: This article was written by Tom Aspray of MoneyShow .

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