Tickers in this Article: SPY, DIA, QQQ, IWM
After pushing higher throughout the week, Friday's early selloff is testing the weekly lows seen on Tuesday. The major indexes have been in an uptrend throughout 2012, and that uptrend remains in tact despite early selling on Friday. The markets had entered overbought territory earlier in the week, and while this in itself is not a sell signal, it can provide a reason for technical traders to exit long positions when prices begin to slide. A move lower provides a buying opportunity, as the price of the major indexes pullback towards their respective upward trend lines.

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The S&P 500 SPDRS (NYSE:SPY) ETF, which represents the S&P 500 index, has been in a strong uptrend since October of 2011. The index entered a resistance area as it approached the May highs ($137.18) earlier in the week. The $136 to $137.18 region was tested multiple times throughout mid-2011 and poses a likely short-term top here as the market pulls back to support before once again moving higher. The next support level is $132 followed by $130. A drop below $130 warns of a more serious correction, as the drop would break below the upward sloping trend line that began back in October. A rise back above Thursday's high at $135.59 (especially a closing price) indicates another wave higher and a likely possibility that the $137.18 May high will be tested and penetrated. (For related reading, see Support & Resistance Basics.)

DJ Industrial Average (NYSE:DIA) ETF, representing the Dow Jones Industrial index, managed to climb above its May high on several occasions this week. While early selling Friday has moved the index back below that level, the uptrend still remains very much in effect. There is short-term support at $126 followed by $124. Pullbacks to these levels provide buying opportunities, but a drop below $124 warns of potential danger as it would break the upward sloping trend line that began back in October. A rise above Thursday's high at $129.12 signals the uptrend is continuing, with the next target at $132.

PowerShares QQQ (Nasdaq:QQQ) ETF, which represents the Nasdaq 100 index, has been in a steep ascent this year and is still trading higher on the week despite early weakness on Friday. The QQQ is in territory we have not seen since 2001, which means there is little overhead resistance, but due to the steep ascent it is in overbought territory as indicated by the RSI. The upward sloping trend line is currently crossing at $57, which means the ETF could fall quite a bit and still be in an uptrend. Interim support is at $61, and $59.50. If the index drops below $59.50 it signals a likely further correction towards the trend line. The ETF is not far off recent highs though; a rise above Thursday's high (especially a closing price) at $62.98 signals this market still has steam and could challenge $64 in relatively short order. (For related reading, see An Introduction To The Relative Strength Index.)

Russell 2000 iShares (NYSE:IWM) ETF, representing the Russell 2000 index, is also in a strong uptrend but moved sideways this week before selling off on Friday. The drop on Friday put the index below support at $82, which means a larger correction could be coming. The next support level is at $80 followed by $78. Both these levels present buying opportunities as the trend remains higher. A drop below $76 would break the trend line and draw the uptrend into question though. The recent high is at $83.22, so a rise above (preferably a close) signals a move into the next resistance area - and there is lots of resistance. $84 to the May high at $86.81 is all resistance, which could make it difficult for the index to climb significantly higher unless all the indexes are moving aggressively higher as well. (For related reading, see Interpreting Support And Resistance Zones.)

The Bottom Line
The major indexes all remain in their respective up trends, yet weakness on Friday means a further pullback could occur. Pullbacks to support or the trend lines are potential buying opportunities in expectation of the next wave higher. The trend lines should be watched and used to manage risk, as a drop below these levels could be signaling a larger correction. The trend remains higher until proven otherwise, but all the markets have been in overbought territory, which means Friday's selling could continue into next week. Look for low-risk entry points near support and manage risk if selling continues below those levels. (For related reading, see Day Trading Strategies For Beginners.)

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At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.

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