Dow, S&P 500 at New Highs but Way Overbought
The Dow Jones Industrial AverageI:DJI and the S&P 500 I:GSPC set all-time highs last week at 18,622.01 and 2,175.63, respectively, on July 20.
The Nasdaq 100 and Russell 2000 set their 2016 highs of 4,670.54 and 1,214.16, respectively, on July 22. Transports remain the laggard versus its 2016 high of 8,149.00 set on April 20.
When weekly charts are positive, stocks tend to move higher. As technical momentum rises, price-to-earnings ratios become elevated and the weekly charts become overbought. These are the dynamics currently spreading among all five exchange-traded funds that track the five major U.S. equity averages.
The weekly charts for the exchange-traded funds that track the Dow 30 and S&P 500, the Nasdaq 100, transports and small caps ended last week positive. Four of the five will likely begin this week overbought with momentum readings rising above the overbought threshold of 80.00. Transports will not be overbought and this average remains in correction territory 14.4% below its all-time high set in November 2014.
The SPDR Dow Jones Industrial Average ETF (DIA) - Get Report , aka Diamonds, closed Friday at $185.51, up 6.6% year to date after setting an all-time of $186.08 on July 20.
The SPDR S&P 500 ETF Trust (SPY) - Get Report , aka Spiders, closed Friday at $217.24, up 6.6% year to date and set an all-time high of $217.37 on July 20.
The Nasdaq 100, the PowerShares QQQ Trust ETF (QQQ) - Get Report , dubbed QQQ, closed Friday at $113.65 up 1.6% year to date and is 1.8% below its all-time high of $115.75 set on Dec. 2, 2015.
The iShares Transportation Average ETF (IYT) - Get Report closed Friday at $142.92, up 6.1% year to date and is still in correction territory 14.8% below its all-time high of $167.80 set on Nov. 28, 2014.
The iShares Russell 2000 ETF (IWM) - Get Report closed Friday at $120.40, up 6.9% year to date and 6.7% below its all-time high of $129.10 set on June 24, 2015.
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 positive with the ETF above its key weekly moving average of $180.44 and well above its 200-week simple moving average of $163.40. The weekly momentum reading ended last week at 76.90 up from 67.02 on July 16.
Investors looking to buy this Diamonds should do so on weakness to $182.26 and $181.58, which is a key level on technical charts until the end of this week and the end of September, respectively.
Investors looking to reduce holdings should do so on strength to $199.85 and $204.48, which are key levels on technical charts until the end of 2016.
Spiders
Courtesy of MetaStock Xenith
The weekly chart for Spiders is positive with the ETF above its key weekly moving average of $211.25 and well above its 200-week simple moving average of $186.97. The weekly momentum reading ended last week at 78.90 up from 69.87 on July 15.
Investors looking to buy Spiders should do so on weakness to $212.65 and $212.02, which are key levels on technical charts until the end of this week and the September, respectively.
Investors looking to reduce holdings should do so on strength to $239.86 and $245.56, which are key levels on technical charts until the end of 2016.
QQQ
Courtesy of MetaStock Xenith
The weekly chart for QQQ is positive with the ETF above its key weekly moving average of $109.67 and well above its 200-week simple moving average of $92.47. The weekly momentum reading rose to 71.47 last week up from 60.14 on July 15.
Investors looking to buy QQQ should do so on weakness to $109.26, which is a key level on technical charts until the end of this week. The downside risk is to $96.72 by the end of
Investors looking to reduce holdings should do so on strength to $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 is positive with the ETF above its key weekly moving average of $139.16 and is above its 200-week simple moving average of $133.45. The weekly momentum reading ended last week at 56.46 up from 44.76 on July 15.
Investors looking to buy the transportation ETF should consider doing so on weakness to $136.24, which is a key level on technical charts until the end of 2016.
The $142.30 should be a magnet until the end of September as it was last week.
Investors looking to reduce holdings should do so on strength to $167.06 and $172.27, which are key levels on technical charts until the end of 2016. The all-time high is $167.80 set on Nov. 28, 2014.
Small-Caps
Courtesy of MetaStock Xenith
The weekly chart for the small-cap ETF is positive with the ETF above its key weekly moving average of $116.29 and above its 200-week simple moving average of $109.16. The weekly momentum reading ended last week at 79.01 up from 72.70 on July 15.
Investors looking to buy this ETF should do so on weakness to $112.44 which is a key levels on technical charts until the end of September.
Investors looking to reduce holdings should do so on strength to $141.17 and $143.23, which are key levels on technical charts until the end of 2016, and above the all-time high of $129.10 set on June 24, 2015.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.