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Tickers in this Article: DIA, SPY, IWM, QQQQ
While this week was peppered with volatile overnight and intraday moves, in the end it can best be classified as a week of consolidation. The general indexes have been probing for support near the lows set during the "flash crash" a few weeks ago. So far support has held, but the bounces have been weaker on each attempt. Near-term resistance levels have also held on each rally attempt, and the markets will likely remain choppy until one side of the current range is breached.

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The S&P 500, as represented by the S&P 500 SPDRS (NYSE:SPY) ETF, has been finding support near the $105 level over the past two months. Initially, the reactions were sharp and on an increase in volume. This week began with yet another test of this level, and the initial thrust was fairly weak when compared to prior attempts. Additionally, the day following the initial test lacked any follow-through on the part of the bulls. Ultimately, the markets did respect support again, and spent the rest of the week attempting to move back higher. The top of the current near-term trading range is approaching $111 but traders should be on alert for a failure to even reach this level on the current attempt. With how weak the current attempt is, a failure to reach the top of the range, followed by a retest of $105 could lead to a breakdown.

Source: StockCharts.com


The Diamonds Trust, Series 1 (NYSE:DIA) ETF, which tracks the Dow Jones Industrial Average, is trading in a very similar pattern to SPY. It has settled into a consolidation with $98 marking the bottom of the range and $103 marking the top. The recent bounce off support has actually been stronger than SPY, and DIA is not too far from $103. However, DIA is trapped below its 200-day moving average, and this could act as an added resistance level. DIA needs to clear the $103 level to complete a small double bottom that would confirm this area as strong support. A failure near the top of this near-term range would likely lead to a test of the bottom of the range and possibly worse.

Source: StockCharts.com


The Nasdaq, as represented by the Powershares QQQ ETF (Nasdaq:QQQQ), is also trading in a range, although it has continued to maintain some relative strength compared to SPY and DIA. QQQQ has reclaimed its 200-day moving average and managed to close right near its 20-day moving average. The recent high set in June near $47 is the level to watch on the upside. Near-term support on the downside will likely be found near $43.50, as this level has held the past few bouts of weakness.

Source: StockCharts.com


The Russell 2000, as represented by the iShares Russell 2000 Index (NYSE:IWM), ended up losing its 200-day moving average early this week, but managed to rebound and reclaim the average a few days later. IWM continues to follow a pattern of longer term relative strength versus some weakness near term. IWM is still well above its February low, which shows longer term strength. In the near term, IWM is sitting right in the middle of its closest support and resistance levels established by the recent trading range. The level of support to watch is near $62, with resistance looming above near $47.

Source: StockCharts.com


Bottom Line
Some traders have been frustrated with the increased volatility recently, as the markets have gapped in the opposite direction on several days over the past few weeks. While volatility has been higher, overall the markets have technically been consolidating in a range. On the one hand, the markets could be putting in an intermediate low that would end the recent correction, but on the other, the markets could simply be consolidating before another move down. It's too early to know in which direction the next trending move will be, but as the days go by, the range continues to become clearer. Until the markets break free of the current range, traders should continue to show patience and trade cautiously.

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