Major Index Funds

DIA, SPY, and QQQQ are non-leveraged funds that match the indexes. DIA is the ETF tracking the Dow Jones. SPY is the ETF that tracks the S&P 500. QQQQ tracks the NASDAQ.

The majority of the Major Index funds are 2 x funds, which means that the fund will move 2% for every 1% move of the index that it is tracking. The bull funds will go up when the index price goes up. The bear funds will go up when the index price goes down. This group of ETFs includes DDM, DXD, QLD, QID, SSO, and SDS.

Below under “Comments, Analysis, and Recommendations”, I will write my comments for the Major Index Funds giving you my chart analysis. I want to give you good evidence as to why I believe the major indexes are heading higher or lower. I base my analysis on several technical tools. I use Exponential Moving Averages, Elliott Wave Analysis, Fibonacci, Japanese Candlestick patterns, trend lines, and support/resistance lines.

My goal is to provide you with the information needed so you can make the best trading decisions. My goal is also to help you to become profitable and most of all to help keep you from loosing a ton of money. I will provide you the potential price targets to take profits and stop loss levels to help preserve your trading capital in these Major Index Funds.

Click on the desired Major Index Fund link below to view the chart.

DIA SPY QQQQ DDM DXD SSO SDS QLD QID

Comments, Analysis, and Recommendations

SPY sliced through the 102 support level intraday today. The price did bounce of the lows today and closed in the upper ¼ percent of today’s price action. This should be support for a couple of days, and then I expect the price to continue the decline. The price may bounce to the 105 to 107 level. After that, expect the price to head for the next downside target of 95. The 85 level is the next target after that, even though that level will be a couple of weeks away.

The volume had another strong day today in SPY and the other Indexes. Just I have said in previous post, this is just the beginning, as the volume should significantly increase as the price test the March 2009 lows. Tomorrow potentially could be volatile with the employment data coming out and the price could test the 100 level before the price bounces to the above-mentioned levels.

I want to stress that the trend is down and I do not expect that to change for a long time. The last two weeks have been miserable and I expect that to be mild compared to what is ahead for future prices. SPY has only one up day in the last ten days. After the dust settles, we will see multiple weeks of down weeks in a row and even months in a row.

The 13 EMA is back below the 233 EMA and it has turned downward. It will not be long before the 55 EMA will break below the 233 EMA. The 55 EMA has steadily been pointing downward since it started rolling over around the beginning of May. The 233 EMA has leveled off and will start turning down once the price really starts heading lower. This will be a huge sign that the long-term trend is down.

There is no reason for anyone to be long the US Markets. You may make some money trading specific stocks during this bear market; however, that will be very difficult to pick out and downright unlikely. Hang on to what you have. Do not be concerned about how much you are down this year. Retreat so you can fight another day.

The Major Indexes had a bad week last week and it is not looking good for this week either. SPY and QQQQ broke below the 5/25/10 low intraday, while DIA has yet to do so. Also, notice how the volume picked up significantly today. I expect the volume to pick up even more as this decline intensifies.

Do not expect too many bounces as this decline takes hold. We should be testing the March 2009 lows in short order. Volatility is coming back into the market. The VXX is back above 30 and I expect it to rise above 40 soon.

As I have stated in previous post, my first target is 95 and the 85 level after that. These level s are still short of the March 2009 low, which indicates this decline is going to last for a couple of months. This is not going to be a good summer for stocks. There is some support in SPY at the 102 level that may provide a small bounce.

What an ugly day for the market! The market gapped up on the open, which turned out to be near the session’s high. What made it so ugly is not just the fact that it closed down, but that it gave back a huge gain in doing so. In addition, the SPY and QQQQ both had bearish engulfment candlesticks today, which not only engulfed yesterday’s candlestick body, but engulfed the previous day’s real body also.

What was also striking about today’s sell off was the fact that the volume was still relatively light. This tells me that there were just no bids today. Nobody wanted to buy, which provided no floor for the market. DIA does not look as bad as the others do, but QQQQ had a large decline.

I do not see these Index Funds going any higher from here. I may be wrong, but I do not see it. One thing to be look for in the coming days when viewing the 60-minute chart is the start of lower highs and lower lows to indicate that the prices are heading lower.

My target with the higher high on the open today is the 95 level. The next two targets are the 90 and 85 levels.

DIA and SPY both broke their 6/3/10 high intraday today. That has some big implications. That rules out two consecutive waves 1 and 2. The first leg down from the 4/26/10 high ended with the 5/25/10 low. The price action since then has been sideways or should I say corrective. The pattern formation looks like a potential Elliott Wave Flat and could be complete or nearly so.

The significant change mentioned alters our price targets. Since the first leg down is now larger, the price targets are further down the chart. The 100% price extension of the move from 4/26/10 high to the 5/25/10 low will put the price below the 95 level for SPY. The 161.8% price extension puts the price around the 80 level. These targets are considerably lower than what I mentioned in the last update.

The flat mentioned above could potentially be complete, especially with the poor showing today. The price rose above the 6/3/10 high and closed considerably lower. In fact, the price gapped up on the open and then proceeded to rise even higher. All of this was for nothing for the price closed considerably lower and at the low of the day. This is not a sign of strength! If the price does move higher from here, which should not take more than a day or two if it does, the next leg down should be very soon. We may get a hint of what is next with the price action tomorrow.

I hope there is no doubt for you, as to which direction the Major Stock Indexes are heading. SPY has had two days of intense selling. There was an opening gap on Friday that will most likely go unfilled for a long time. The price did not retrace into the TAZ as much as I had anticipated, which indicates the strong pull the bear market is beginning to exert on the price. The volume has also begun to pick up with the last two big down days.

What can we expect now? First and simple answer is lower prices, much lower prices. The 13 EMA is below the 55 EMA and the price is below the 13 EMA. The price is again below the 233 EMA and has begun to put some distance between the two. Now the 13 EMA is about to cross under the 233 EMA. We will be in a full fledge bear market when the 55 EMA crosses below the 233 EMA.

Now for some price projections. By using the 5/13/10 high and the 5/25/10 low, we can use the Fibonacci Price Extension to give some idea as to what price points we can expect in the near term to intermediate term. The price target for SPY to where the next leg down is equal to the move from 5/13/10 down to the 5/25/10 low is near the 98 area. The 161.8% price extension target is the 90 area.

Also, look at the prior decline that started with the 4/26/10 high and ended with the 5/6/10 low. With the wave 2 high on 5/13/10, the 161.8% Fibonacci Price Extension is also the 90 area. That is two legs down from two different degrees of trend that point to the same target level.

Look to the left and you will find out that the 90 area is also strong horizontal support. There is not much way of support below that level. Therefore, there is your next anticipated target in this decline. That target is not set in stone; however, it serves as an excellent idea to the extent of this next leg down.

Remember that we are still in a bear market since the October 2007 high and you can expect the March 2009 low will be broken before we hit anything that resembles a bottom. Look at the weekly chart and you will see exactly what I am implying here. This is going to get ugly soon.

SPY is taking its time, however, it is inching its way deeper into the TAZ as anticipated. It also broke the 5/27/10 high intraday and therefore could have completed the correction. If so, the price should fall soon and with intensity. The critical support to watch is the 6/1/10 low. A break below that level will signal that the corrective rally is over.

One thing to watch for if the price does go higher is the unfilled gap created with the open on 5/14/10. I just do not see the price retracing that much of the decline from the 5/13/10 high. The volume is already below the average and is decreasing as the price inches higher. I am not saying the price could not fill that gap, I just believe the odds are against it doing so. That would also put the price above the 55 EMA.

If the price breaks above the 5/13/10 high, it will indicate the price is most likely going to break above the 4/28/10 high also. I have mentioned in previous post, that the present price action could be an Elliott Wave ABC correction and higher prices are in store when the downward correction is complete. Therefore, you have two critical levels to watch, the 5/13/10 high and the 6/1/10 low.

SPY has almost retraced 50% of the decline from 5/13/10. You can count five complete waves down to the 5/25/10 low with the third wave extended. The question we have to answer, is this price rise the beginning of another bull run? The decline since the April high could be an ABC correction and the price could be set to break the April highs. I doubt it.

Spy is also trying to fill a gap created with the open on 5/20/10. The gap is still open right now, but could easily be closed tomorrow as the price reaches for the 61.8% Fibonacci Retracement level, which rest on strong resistance.

The Elliott Wave count for the corrective move upward could be complete with today’s market close; however, I expect one more push higher into the TAZ before the decline resumes. I said the other day that we could expect the price to rise into the TAZ and we could see that tomorrow.

The critical resistance level is the 5/13/10 high. If my analysis is correct, the price must stay below the 5/13/10 high. The critical support is the 5/25/10 low and when the price heads below that level, you better be holding on to your hat!

With the trend down, sited resistance levels, and Elliott Wave count, there is no reason for anyone to be long stocks at this time. There is just too much risk of losing a ton of money. Cash is a good investment strategy these days with the U.S. Dollar and volatility on the rise.

DIA and SPY traded below their 2/5/10 lows today. However, I can here everybody screaming double bottom tomorrow and the rest of the week. I do expect these two to continue their bounce just as it bounced off the lows today. This upwards price movement could potentially last the entire week. Do not be fooled into thinking the bull market is about to begin, especially with the 2/5/10 low taken out, prices are headed lower eventually.

DIA and SPY both have their prices below the 233 EMA. Expect the price to move back above the EMA and challenge the TAZ with the 13 and 55 EMAs. The next down side target for DIA is the 90 to 85 level and the next target for SPY is 95 to 90.

DIA and SPY show prices are now below all three EMAs. The 13 EMA is below the 55 EMA, however both of these are still above the 233 EMA. When the 13 and 55 EMAs cross below the 233 EMA, it will indicate that the long-term trend is changing to a downward bias. QQQQ price has not broken below the 233 EMA, but is resting just above it. I am not sure resting is the correct word! The 13 EMA is below the 55 EMA just as it is with DIA and SPY. The level to watch is the 5/6/10 low. A break below that level will usher in lower lows. The 2/5/10 low is even more critical that the 5/6/10 low. With what has been going on in the markets and the fear that is coming into the markets, could the price rush through both lows is one swoop? It is possible, because everybody knows that those levels are key support levels.

The 13 EMA has crossed below the 55 EMA. The trend has switched to down and trade accordingly while the prices continue to make lower highs and lows. This could be the last B wave in a triple zig-zag or it could be the start of much larger move down below the March 2009 low. The recent recovery high and the low of 2/5/10 will be critical resistance and support to determine which scenario is unfolding.

Is it possible the Major Index Funds top Friday? It is very likely with the candlestick patterns for DIA and QQQQ. Both formed a bearish engulfment pattern. The volume also supports the possible top as the volume broke above its 50-day moving average Friday.

The price in the Major Index Funds should decline in the next couple of days or weeks. Is the bear market about to resume its downtrend? I would not jump into that wagon just yet. I, personally, want to see lower highs and lows before I start trading the market from the short side.

However, a short-term trader may take advantage of the current setup and trade from the short side of this market. The potential range for the price to fall is the 2/22/10 high through the 3/9/10 high. A longer-term trader should wait for a break below the 2/5/10 low before committing to the short side of the market.

Be a smart trader!

Craig Wells

Today saw the Major Index Funds move higher, which was very impressive. The NASDAQ broke the January high even though it was by the narrowest of margins. However, the NASDAQ 100 Index failed to do so as also the Dow and S&P. This could potentially be a non-confirmation, which only time will tell. The volume was very light with the higher prices today.

The Major Index Funds does not have much room left for the bearish scenario. As long as the 1/19/10 high holds, so does the bearish case, although it is narrowing. Next week will be very critical for the Elliott Wave interpretation.

A complete five waves up in SPY from the wave iv low of 112.19 on 3/4/10 will signal the move up is over. More important is a five-wave move down for the confirmation. Another clue that the corrective move up from 2/5/10 is over will be an intense move down with increasing volume with down stocks out numbering the up stocks by a wide margin after the completion of the five waves up just mentioned.

One more thing to mention is the VIX is at its lowest in three years. Investors have become very complacent. Look out when the VIX starts rising. Like I already said, next week should be critical for the future price for the Indexes.

Be a smart trader!

Craig Wells

The Major Index Funds did move higher today, but it did not look pretty. DIA came up short of the 76.4% retracement level while SPY and QQQQ reached it. Though SPY and QQQQ did make that resistance level, the Japanese Candlestick was bearish.

The bearish scenario can only hold as long as 1/19/10 high can hold. There is not much room left. The 76.4% retracement level is usually the last stronghold for the resistance of price. The price action today indicated by the candlestick patterns today may prove to be the completion of the correction. We should know something by tomorrow or Wednesday.

A break below the 2/25/10 low will be the first sign that the next leg down is potentially underway. A clear five-wave pattern to the downside will be better. It is important to wait on a five-wave pattern before jumping in a short sell. If you had been following my comments, you had been warned that a turn lower is expected, however, you would also have been kept out of the market due to a lack of a five-wave move down. You may have missed a good move in the market form the 2/5/10 low; however, I can promise you picking bottoms and tops are almost impossible. Therefore, you probably did not miss as much as the charts indicate. I can also promise you, you will lose the profits a lot faster than you gained it when the market turns down in earnest.

Be a smart trader!

Craig Wells

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