Charts Show Markets Recover From Brexit Havoc but Will It Last?

The weekly charts for the ETFs for the Dow 30, S&P 500, Nasdaq 100, and small-caps returned to neutral, while transports remain negative.
By Richard Suttmeier ,

The five major U.S. equity averages recovered strongly last week from a severe two-day plunge following the British vote to leave the European Union on June 23. The major driver of the rebound was the quarter ending, prompting money managers to sell market losers and buy market winners to make client statements look better than they might be. 

As the first full week of July begins, benchmark averages in Japan, China and Germany are in bear market territory, and in the U.S. transports and small caps are in correction territory. 

Even with the rebound for stocks last week, "flight to safety" investments continued to outperform the major averages. ETFs representing treasury bonds, gold and dividend-paying utilities have year-to-date gains of 16.6%, 26.6% and 21.3%, respectively. Bonds and utilities set all-time highs, while gold set a 52-week high.

The Dow Jones Industrial AverageI:DJI and the S&P 500 I:GSPC have year-to-date gains of just 3% and 2.9%, respectively. These averages had two-day plunges of 5.3% and 5.8% respectively, then rebounded to within 0.3% and 0.5% of their closes on June 23 last Friday. The "flight to safety" has Dow Utilities up 4.9% since its June 23 close.

Bulls need to be aware that all five major averages still have declining weekly momentum (12x3x3 weekly slow stochastics). What's needed for the bears is weekly closes below their key weekly moving averages (5-week modified moving averages). This week be shown when we show the weekly charts for the corresponding exchange-traded funds.

Here's how to trade the five major U.S. equity averages via exchange-traded funds.

The Dow Jones Industrial Average can be traded using the SPDR Dow Jones Industrial Average ETF (DIA) - Get Report , aka Diamonds.

The S&P 500 can be traded using the SPDR S&P 500 ETF Trust (SPY) - Get Report , aka Spiders.

The Nasdaq is best traded using the ETF that represents the Nasdaq 100, the PowerShares QQQ Trust ETF (QQQ) - Get Report , dubbed QQQ.

The Dow Jones Transportation Average can be traded using the iShares Transportation Average ETF (IYT) - Get Report .

The Russell 2000 can be traded using the iShares Russell 2000 ETF (IWM) - Get Report .

Here are the weekly charts and trading levels for the five stock market ETFs.

Diamonds

Courtesy of MetaStock Xenith

The weekly chart for Diamonds is neutral with the ETF above its key weekly moving average of $176.87 and well above its 200-week simple moving average of $162.67. The weekly momentum reading ended last week at 51.46 down from 56.63 on June 24. A weekly close below $176.87 shifts Diamonds back to negative.

Investors looking to buy Diamonds should do so on weakness to $172.49, which is a key level on technical charts until the end of July. A weekly close below $172.49 indicates risk $145.61 by the end of the year.

Investors looking to reduce holdings should do so on strength to $181.58, which is a key levels on technical charts until the end of Sept. A weekly close above $181.58 indicates upside to the all-time high of $183.78 set on May 20, 2015 and an outside chance of $204.48 by the end of the year.

Spiders

Courtesy of MetaStock Xenith

The weekly chart for Spiders is neutral with the ETF above its key weekly moving average of $207.14 and well above its 200-week simple moving average of $185.93. The weekly momentum reading ended last week at 58.44 down from 66.64 on June 24. A weekly close below $207.15 shifts Spiders back to negative.

Investors looking to buy Spiders should do so on weakness to $201.08 which is a key level on technical charts until the end of July. A weekly close below $201.08 indicates downside risk is to $163.38 by the end of 2016.

Investors looking to reduce holdings should do so on strength to $212.02, which is a key level on technical charts until the end of Sept. A weekly close above $212,02 indicates upside potential to the all-time high of $213.78 set on May 20, 2015 and an outside chance of $245.56 by the end of the year.

QQQ

Courtesy of MetaStock Xenith

The weekly chart for QQQ is neutral with the ETF above its key weekly moving average of $107.30 and well above its 200-week simple moving average of $91.84. The weekly momentum reading declined to 47.00 last week down from 54.15 June 24. A weekly close below $107.30 shifts QQQ's back to negative.

Investors looking to buy QQQ should do so on weakness to $102.86, which is a key level on technical charts until the end of July. A weekly close below $102.86 indicates risk to $96.72 by the end of 2016.

Investors looking to reduce holdings should do so on strength to $111.51, which would fill the price gap to the Dec. 31 low. The upside above the gap is $117.78, which is a key level on technical charts until the end of Sept. This would be above the all-time high of $115.75 set on Dec. 12, 2015.

Transports

Courtesy of MetaStock Xenith

The weekly chart for the transportation ETF remains negative with the ETF below its key weekly moving average of $136.75 and is back above its 200-week simple moving average of $132.69, which was crossed to the upside last week. The weekly momentum reading ended last week at 33.90 down from 38.77 on June 24.

Investors looking to buy the transportation ETF should consider doing so on weakness to $126.82 and $123.82, which are key levels on technical charts until the end of July and the end of 2016, respectively.

The $136.24 level should be a magnet for the remainder off 2016.

Investors looking to reduce holdings should do so on strength to $142.30, which is a key level on technical charts until the end of Sept. A weekly close above $142.30 indicates potential to $167.80, which is the all-time high set on Nov. 28, 2014. There is an outside chance of a test of $172.27 by the end of 2016.

Small Caps

Courtesy of MetaStock Xenith

The weekly chart for the small cap ETF is neutral with the ETF above its key weekly moving average of $113.50 and above its 200-week simple moving average of $108.66, which was tested on weakness last week. The weekly momentum reading ended last week at 69.50 down from 75.19 on June 24.

Investors looking to buy this ETF should do so on weakness to $108.10 and $103.68, which is a key level on technical charts until the end of July and the end of 2016, respectively. Underneath $103.68 is risk to $93.42, which is a key level until the end of 2016.

The $112.44 level should be a magnet through September.

Investors looking to reduce holdings should do so on strength to $119.30, which is a key level on technical charts until the end of this week. Above is the all-time high of $129.10 set on June 24, 2015. There's an outside chance of strength to $143.23 by the end of the year,

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

Loading ...