The market is now wondering whether Tuesday's sharply higher close in reaction to good news from the EuroZone was a fake out, and MoneyShow's Tom Aspray explains why it is the weekly closing price that will answer this question.

The stock market retreated Wednesday after Tuesday's impressive higher close in the S&P 500 above the recent highs. The market internals were a bit more negative than they were positive on Tuesday.

The McClellan oscillator has dropped to -9 and other technical measures have weakened, so a further decline is looking more likely. The stock index futures are showing sharp losses in early trading with several of the EuroZone markets down over 1%.

The weaker than expected data on manufacturing and services data from the EuroZone precipitated the selling. The news that China's factory activity had dropped to the lowest level in six months also did not help.

Does this mean that Tuesday's higher close was a false breakout? That is a clear possibility and a weekly close below $203.13 in the Spyder Trust (SPY) and $101.38 in the PowerShares QQQ Trust (QQQ) will indicate that the breakout was false.

That would imply a drop in the SPY back to the $200 area while the market leading QQQ could drop back to the $100-$101.25 area. This would correspond to one of the two scenarios that I outlined last week. To reaffirm the uptrend, we need to see a strong market close either today or Friday on 2-1 or better A/D numbers.

I still think that some industry groups and sectors, such as the brokerage stocks discussed yesterday, will hold up better than the market during a correction. I am still expecting stocks to start moving higher in December and early next year. Examining the technical studies on the market tracking ETFs will show you what price levels to watch.

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Chart Analysis: The NYSE Composite closed above near term resistance Tuesday as the downtrend, line a, was just overcome.

  • The NYSE is still well below the early September high at 11,108.
  • The daily starc+ band is at 11,038 with the quarterly projected pivot resistance at 11,340 (red line).
  • The NYSE Advance/Decline Line has formed a short-term negative divergence, line b, which is a sign of weakness.
  • I have been noting the deterioration in the McClellan oscillator for some time (see arrow) and it has now dropped below zero.
  • There is initial support now at 10,756-10,789, which corresponds to the 20-day EMA, daily starc- band, and quarterly pivot.
  • Additional support is in the 10,606 area.

The Spyder Trust (SPY) closed at $205.55 on Tuesday and was lower early Wednesday but firmed after the FOMC minutes were released. The SPY was just a bit lower for the day.

  • The chart resistance from the July and September highs, line c, has been tested.
  • The daily starc+ band is at $207.33 with November's projected pivot resistance at $208.35.
  • The S&P 500 A/D, unlike the NYSE, did make higher highs on Tuesday, line d.
  • The A/D line is still well above its rising WMA.
  • The daily OBV has finally broken above the resistance at line e, but is still below the summer highs.
  • Last week's low was $203.13 with the 20-day EMA at $203.27.
  • There is further support at the September high of $201.90.

NEXT PAGE: Two More Market Tracking ETFs to Watch

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The PowerShares QQQ Trust (QQQ) still shows a solid uptrend as it has formed higher highs all month.

  • The daily starc+ band and quarterly projected pivot resistance are in the $104.84 area.
  • The weekly starc+ band is a bit higher at $105.49.
  • The Nasdaq 100 A/D line peaked on November 10 and did not make a new high this week, line b.
  • The A/D line is now closer to its still rising WMA.
  • The daily OBV has just reached the September highs, line c, and is still above its WMA.
  • The weekly OBV could drop back below its WMA this week, generating an AOT sell signal.
  • There is initial weekly support at $101.38 and the 20-day EMA is at $101.28.
  • Further support from the September highs at $100.56.
  • There is more important support and the 50% retracement level at $96.80-$98.

The iShares Russell 2000 (IWM) has already declined 2.6% from the November 13 high at $118.25 as the 20-day EMA was tested Wednesday.

  • The breakout level, line d, is also now being tested with the quarterly pivot at $112.95.
  • There is additional support in the $111.58 area and then at $110.
  • The Russell 2000 A/D line dropped below its WMA on Monday.
  • It looks ready to test the former downtrend, line e.
  • The daily OBV is now testing its WMA with further support at line f.
  • There is initial resistance at $116.58, which is the quarterly projected pivot resistance.
  • The daily starc+ band is at $119.15.

What it Means: Though many traders often ignore the weekly charts, the weekly closing prices are often quite significant and I think this is one of those weeks. A lower weekly close will suggest further selling next week, but a correction is likely to be a buying opportunity for some stocks. I will be watching those IBD stocks that are rising up their top 50 list.

The PowerShares QQQ Trust (QQQ) and iShares Russell 2000 (IWM) need to get closer to more important support before I will be looking to establish new long position. Watch my Twitter feed intra-day for new recommendations.

How to Profit: No new recommendation.