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Tickers in this Article: DIA, IWM, QQQQ, SPY
The past three weeks have been characterized by sideways trading action as the markets continue to take a breather. While the markets have been trading slightly higher each week, the price advance has been negligible. However, with elections and a Fed meeting next week, it's very feasible that the markets will finally have a catalyst for choosing a short-term direction. Whether the next short-term move is up or down is anyone's guess, but it's very clear that the markets still remain in an uptrend and have some clear support levels just underneath recent price action.

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The Powershares QQQ ETF (Nasdaq:QQQQ) for instance, is clearly above its recent base and is trading at multi-year highs. In fact, QQQQ is fairly close to its prior bull market high of $55.07. While QQQQ remains extended and could be susceptible to a pullback, it is clearly above a few support levels that may attract buyers on weakness. The first level to watch is near $50, which was an important pivot high from April. A drop below this level would put the $49 in the spotlight, and below that $47. That would be a very steep pullback, but even then the trend in QQQQ would likely still be safe.


The S&P 500, as represented by the S&P 500 SPDRS (NYSE:SPY) ETF, hasn't been quite as strong as QQQQ, mainly due to the financial components weighing it down. However, much like QQQQ, SPY remains above a couple of key support levels should it sustain some selling pressure in the near future. The $115 area would be one level to watch, although the $113 area is probably the key level to watch on a steep pullback. If the markets continue higher, then all eyes will be on the April highs near $122.


The Diamonds Trust, Series 1 (NYSE:DIA) ETF did manage to clear its April high, but it also failed to get past it. Instead, it has been stalling in this area, threatening the possibility of a double top. Despite the fact that DIA has been unable to follow through, the overall picture remains decent. DIA is still above a rising 20-day moving average and is also above key support levels.


The iShares Russell 2000 Index (NYSE:IWM) is the index that continues to stand out as a laggard. IWM is still well below its April highs, and is already testing its 20-day moving average. If this test fails, IWM could see a quick move down to test the $67 area. This would be a key level to watch as the top of the double bottom pattern that ended the recent correction. The clear area to watch above is near $74, which coincides with IWM's April highs.

Bottom Line
With the markets basically on pause for three weeks, traders need to be careful and not get too complacent. There should be a move out of this range soon, and while the intermediate-term trend is solid, we could see a pullback in the near term. Sentiment studies are starting to show some excess bullishness in traders, and this has typically been a contrarian indicator. This fact, paired with what has been a substantial move over the past two months, could be a recipe for a swift correction. However, the markets could easily resolve this recent consolidation higher, so traders really just need to be on guard. The markets will not trade in a tight range indefinitely, and next week's elections and Fed meeting could be the catalyst traders are waiting for.

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