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Tickers in this Article: SPY, DIA, IWM, QQQ
It was a volatile week as the markets attempted to halt their recent declines. The markets have still been unable to string along consecutive positive days; there were some signs of hope this week for longs. While Tuesday's gap higher was completely erased on Wednesday, the markets shook off a breakdown attempt on Thursday and managed to show some strength on a reversal. Unfortunately, Friday was also another down day and in the end, the markets closed near their lows for the week. However, bulls have been gradually turning the trend sideways, and despite the negative week, the indexes held above last weeks lows. Overall, the markets are oversold and sentiment has been turning bearish. We mentioned last week that "the first bounce attempt is likely to be faded rather quickly" and this is indeed what occurred. However, if the market indexes can hold off the selling and attempt another bounce, it could carry further, and maybe test the markets declining 50-day moving averages. TUTORIAL: Economic Indicators To Know

The S&P 500 as represented by the S&P 500 SPDRS (NYSE:SPY) actually managed to stay above its Thursday low, despite the weak close on Friday. It also held above last weeks low's which was positive. While the trend is still clearly lower, the markets are already oversold as they test an important support level near $126. Much like it's difficult for the markets to break out in a straight line higher; it is unlikely for the markets to continue sliding lower without a bounce. With volume also picking up at these levels, it appears that buyers are starting to step in. However, if the 2008 Bear market taught us anything, it's that the market can always get more oversold. Traders need to keep an eye on the $126 level and see how SPY continues to ACT near this level. (For more, see 4 Types Of Indicators FX Traders Must Know.)

The Diamonds Trust, Series 1 (NYSE:DIA) ETF maintained above the gap it filled last week and is in an interesting area, sandwiched between support at $118 below, and new gap resistance near $120. DIA is probably the least important of the indexes to key off, so traders must simply watch the two levels to see which direction DIA eventually takes. A drop below $118 would imply a test of the March lows and its 200-day moving average near $116. (For more, check out Playing The Gap.)

The Powershares QQQ ETF (Nasdaq:QQQ) ETF was able to get a substantial bounce from the $53.50 level this week, as it finally halted the near vertical decline. While Friday's close put QQQ back under its 200-day moving average, it did finish well off both this weeks low, and last weeks low. The $53.50 is a huge level to watch, and a breakdown below this level would likely have dire implications for the general markets. As it stands, QQQ is trading in a large lateral range, and despite the breakout failure in May, QQQ has not really put a top in yet.

The star of the week was the iShares Russell 2000 Index (NYSE:IWM) ETF. IWM was able to find buyers near the important $77 level and then staged a strong bounce. IWM was able to close back above its 20-day moving average on a couple of occasions, and is well above its recent lows. Much like $53.50 in QQQ, the $77 level is also extremely important to watch moving forward. With IWM representing 2000 stocks, it is a key component to watch for clues in the markets. A break below this level would signal serious weakness in the markets.

There is no sugar coating the fact that the markets closed weakly once again. Sellers have been in control for weeks now, and every positive day has been met with selling. However, there are some signs of life in the markets here. The recent volume spike and intraday reversals are hinting at some possible buyers stepping in. Also, several stocks have held up well, and are presenting possible opportunities. There is no doubt that the markets are still vulnerable, but as they continue to get more oversold, it sets the stage for a counter trend rally. While it may still be a long summer, the markets typically don't travel in a straight line to either direction. (For related reading, also see The Anatomy Of Trading Breakouts.)

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