Stock exchange traded funds were higher for the third straight day on Monday following the big breakdown from late July and early August.
For investors, the question is whether this is an oversold bounce before more pain, or if the path is open for perhaps a test of the 2011 high.
“Even though equities are slipping into bear markets, and key charts are damaged, such as the death-cross discussed Friday, the current oversold bounce may have further to run,” said Tarquin Coe, technical analyst at Investors Intelligence. [ETF Analyst: I See Death Crosses]
“The oversold bounce soon after the 2007 head-and-shoulders on the S&P 500 lasted weeks with a throwback all the way back to the underside of that top. If that repeats this time around, the index could correct all the way back up to 1260,” Coe wrote in a newsletter Monday. “A similar dead-cat bounce also followed the May flash-crash last year. The index remains vulnerable but we need to allow for the potential of a further correction of the oversold condition.”
SPDR S&P 500 ETF (NYSEArca: SPY) and iShares S&P 500 (NYSEArca: IVV) were up 1.6% at last check Monday as Google’s (NasdaqGS: GOOG) deal to buy Motorola Mobility (NYSE: MMI) for $12.5 billion helped lift markets.
However, the tech-heavy PowerShares QQQ (NasdaqGM: QQQ) was lagging the S&P 500 on Monday, in a reversal of the recent trend. Google is the third-largest holding in the Nasdaq-100 ETF at about 6% of the portfolio. Google shares slipped nearly 2% after the company said it would acquire Motorola Mobility.
Yet PowerShares QQ has outperformed the S&P 500 since mid-June, said Coe.
“Like other index ETFs, a top was activated with the recent sell-off but this resilient area failed to follow through and achieve its downside objective. A bit more strength today will negate that pattern all together as trading would move back above the patterns neckline at $53.80 [a share],” the analyst wrote Monday.
