The Weekly Report For August 31st - September 4th, 2009
Commentary: One week after an impressive rebound by the bulls, the markets essentially flatlined. The last week of August is often one of the slowest trading weeks, and this year was no exception. Volume came in below average, and most of the major indexes closed the week near where they started. But it seems that someone forgot to tell American International Group, Inc. (NYSE:AIG) that it was a dull week. AIG continued on its recent rampage, rallying over 50% for the week. It seems that risk tolerance has been increasing greatly over the past few weeks. Many speculative names have been rallying strongly lately, including stocks such as Freddie Mac (NYSE:FRE), Fannie Mae (NYSE:FNM), and several small cap names. This appetite for risk can be interpreted as either a bullish or bearish development. On the one hand, investors are starting to feel more comfortable taking on risk which is healthy; on the other hand, excessive risk-taking is often a contrarian signal that the markets are becoming overbought.
IN PICTURES: 7 Tools Of The Trade
The chart for the S&P 500 SPDRS (NYSE:SPY) ETF reveals how the markets ended up just about where they started for the week. Most of the candles on the chart can be classified as dojis, which signal indecision among market participants. Despite the hesitancy of market participants to bid prices higher, the markets did end up above last week's breakout area and remain poised for further upside. [FONT=Arial, Helvetica, sans-serif]
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Source: StockCharts.com[/FONT][FONT=Arial, Helvetica, sans-serif]
The Diamonds Trust, Series 1 (NYSE:DIA) ETF, which tracks the Dow Jones Industrial Average, shows a similar pattern. DIA ended the week slightly above last week's close. Much like its peers, DIA remains above a rising 50-day moving average and above the prior base.
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Source: StockCharts.com[/FONT][FONT=Arial, Helvetica, sans-serif]
The iShares Russell 2000 Index (NYSE:IWM) ETF chart is showing more of the same pattern, although with more volatility. Notice the action for Thursday and Friday and how prices moved from one extreme to the other on both days. The pullback on Thursday threatened to break into the prior base, and Friday's reversal put IWM near breakeven for the week.
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Source: StockCharts.com[/FONT][FONT=Arial, Helvetica, sans-serif]
The Powershares QQQ ETF (Nasdaq:QQQQ) was showing a divergence last week by failing to make new highs last week; then it caught up and also ended the week in a similar position to its peers. Thursday's pullback threatened to pull back into the prior base, reversing much like IWM did. While Friday's candle hints at weakness, the fact that QQQQ remains above last week's range is a sign of strength.
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Source: StockCharts.com[/FONT][FONT=Arial, Helvetica, sans-serif]
Bottom Line
Despite having several excuses to take a break and begin a correction, the indexes have found buying on every pullback. The indexes continue in a pattern of higher highs and higher lows, and the benefit of the doubt remains with the bulls.
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Have a Great Day!
By Joey Fundora
Joey Fundora is an independent trader located in South Florida. Joey focuses on using technical analysis techniques to uncover supply and demand imbalances in equities. To see more of his work, visit his site on Stock Chart Analysis. [/FONT]
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