Weekly ETF Rewind: 'Overbought' Markets Need Strength, And Soon

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Includes: DBA, DBC, DBE, DBP, DIA, EEM, EFA, IWM, IYR, IYT, PWB, PWV, PXMG, PXMV, PXSG, PXSV, QQQ, SPY, TLT, UUP, XLB, XLE, XLF, XLI, XLK, XLP, XLU, XLV, XLY
by: ETF Prophet

By Jeff Pietsch

Markets made gradual, albeit volatile progress last week that left the S&P 500 (NYSEARCA:SPY) higher for the first time in a month by about +1.3%. In fact, due to muted closing ranges overall, by some short-term measures equities are actually beginning to look overbought (see the RSI charts below).

(Click Image to Enlarge/ ETF Rewind Glossary)



The Small-Cap Style ETFs look particularly extended, including IWM, PWT and PWY. However, as these readings maybe exaggerated by the aforementioned narrow range, perhaps markets can build on Friday's late comeback momentum. I'm somewhat skeptical of that, but we'll see. Meanwhile, with nearly 17 days spent under its 20 and 50-day moving averages (which are both pointing lower), I'd suggest that the S&P 500 needs to show stronger signs of recovery strength -- and soon -- if it isn't to be sold for a third leg lower.

Lastly, note how a handful of the tracking indices have actually broken their respective ten-month moving averages, including the: EAFE Internationals (NYSEARCA:EFA), Utilities (NYSEARCA:XLU) and Commodities (NYSEARCA:DBC). This type of damage has the potential to feed on itself and minimally takes weeks to repair. I admit that this is easy to write-off and hope for a recovery ahead, but be advised that this is potentially an early warning sign -- no falling asleep at the wheel here gang! (See "Trading the 200-Day" from the archives.)

Holiday-shortened Week Seven of 2010 featuring very busy reporting calendars, monthly options expiry, and rotation model selections, as follows:

Have a terrific long weekend! (Click to enlarge)


Disclaimer: Never investment advice