Charts Suggest Traders Should Buy and Sell Stocks Within Range

 NEW YORK (TheStreet) -- The daily and weekly charts for the stock market suggest that investors should trade the ranges until there's a clear signal that the five major equity averages will see new highs. At risk is the possibility that before the end of May there could be a signal to "sell in May and go away."

Here are the updated profiles for the five major averages followed by the weekly charts for the three exchange-traded funds that investors should trade to capture the trading ranges.

The Dow Jones Industrial Average closed at 18,191.11 last week, up 2.1% year to date and 0.5% below its all-time intraday high of 18,288.63 set on March 2. Friday's high of 18,205 was just above this month's key technical level of 18,199. The weekly chart is positive with the index above its key weekly moving average of 17,990. That indicates upside potential to key technical levels of 18,245 and 18,328, which expire at the end of this week and at the end of June, respectively.

The Standards & Poor's 500 Index closed at 2,116.10 last week, up 2.8% year to date and 0.5% below its all-time intraday high of 2,125.92 set on April 27. Last week's low of 1,067.93 was between two key levels on technical charts. Key levels of 2,053.3 and 2,097.8 expire at the end of June and the end of May, respectively. The weekly chart is positive but overbought with the index above its key weekly moving average of 2,096.0. That indicates upside potential to a key level of 2,141.6 which expires at the end of this week.

The Nasdaq Composite Index closed at 5,003.55 last week, up 5.6% year to date and 2.3% below its multiyear intraday high of 5119.83 set on April 27. Last week's low of 4,888.17 was between two key levels on technical charts. Key levels of 4,983 and 4,635 expire at the end of May and the end of June, respectively. The weekly chart is positive but overbought with the index above its key weekly moving average of 4,969. That indicates upside potential key levels of 5,092 and 5,397, which expire at the end of this week and at the end of June, respectively.

The Dow Transportation Average closed at 8,766.89 last week, down 4.1% year to date and 5.8% below its all-time intraday high of 9,310.33 set on Nov. 28. Last week's low of 8,567.20 was between two key levels on technical charts. Key levels of 8,615 and 8,452 expire at the end of this week and at the end of June, respectively. The weekly chart is neutral with the index below its key weekly moving average of 8,800 but with rising weekly momentum. A key level on technical charts for May of 9,180 is well below the high.

The Russell 2000 closed at 1,234.93 last week, up 2.5% year to date and 3.4% below its all-time intraday high of 1,278.63 set on April 15. Last week's low of 1,211.13 was between two key levels on technical charts. Key levels of 1,213.47 and 1,207.39 expire at the end of May and June, respectively. The weekly chart is negative with the small-cap index below its key weekly moving average of 1,241.94. A key level on technical charts of 1,266.64 is below the all-time high and expires at the end of this week.

For the signal to "sell in May and go away," all five major averages need to have weekly closes below their key weekly moving averages with weekly momentum readings declining below 80.00.

Here are weekly charts for three major equity ETFs.


Courtesy of MetaStock Xenith

The SPDR Dow Jones Industrial Average ETF (DIA) closed at $181.85 on Friday. The fund is above its key weekly moving average of $179.64 with its momentum reading at 72.51, which was up from 69.93 a week earlier.

Investors looking to buy the Dow 30 ETF should place a good-till-canceled limit order to purchase the fund if it drops to $150.82 and $145.24, which are key levels on technical charts until the end of the year.

Investors looking to book profits should place a good-till-canceled limit order to sell the fund if it rises to $188.07, which is a key level on technical charts until the end of June.

Key levels on technical charts of $179.33 and $182.31 should remain as magnets until the end of June. Last week's low of $177.25 was below these magnets.


Courtesy of MetaStock Xenith

The SPDR S&P 500 ETF (SPY) closed at $211.62 on Friday. The fund is above its key weekly moving average of $209.48 with its momentum reading of 80.28 in overbought territory, up from 76.33 the prior week. .

Investors looking to buy the S&P 500 ETF should place a good-till-canceled limit order to purchase the fund if it drops to $158.47 and $155.56, which are key levels on technical charts until the end of the year.

Investors looking to book profits should place a good-till-canceled limit order to sell the ETF if it rises to $215.16, which is a key level on technical charts until the end of May.

Key levels on technical charts of $205.08 and $207.13 should remain as magnets until the end of June. Last week's low of $206.76 was between these magnets.


Courtesy of MetaStock Xenith

The PowerShares QQQ Trust ETF (QQQ) closed at $108.69 on Friday. The fund is above its key weekly moving average of $107.71 with its momentum reading at 77.28, which was up from 76.18 a week earlier.

Investors looking to buy the PowerShares QQQ ETF should place a good-till-canceled limit order to purchase the fund if it drops to $89.24, which is a key level on technical charts until the end of the year.

Investors looking to book profits should place a good-till-canceled limit order to sell the ETF if it rises to $109.07, which is a key level on technical charts until the end of May.

A key level on technical charts of $105.64 should remain as a magnet until the end of June. Last week's low of $106.00 was just above this magnet.

Investors not familiar with technical analysis should begin with the notion that a price chart for an index or stock shows a road map of past price performance, which provides guidance for predicting future share-price direction.

Here's how to read a weekly chart. This chart shows weekly price bars going back to the beginning of 2007 and thus includes the crash of 2008, and then the current bull market for stocks that began in March 2009. The red line tracks the ups and downs of the key weekly moving average. The green line is the 200-week simple moving average. The red line that oscillates along the bottom of the chart is the momentum reading on a scale of 00.00 to 100.00. A reading below 20.00 is oversold and a reading above 80.00 is overbought.

A technically positive weekly chart occurs when a stock ends a week above its key weekly moving average with the momentum reading rising above 20.00.

A technically negative weekly chart occurs when a stock ends a week below its key weekly moving average with the momentum reading declining below 80.00.

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

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