Tickers in this Article: SPY, DIA, QQQ, IWN
The United States markets moved higher this week as the economy showed many signs of improvement across the board. Earlier this week, the automotive sector received a boost from higher-than-expected car sales, while the ISM's non-manufacturing index and factory orders jumped above their respective consensus forecasts. The week was topped off by bullish employment figures released on October 5 showing an unemployment rate of just 7.8%.

Global markets also showed some optimism this week. While the eurozone's unemployment rate remained steady at 11.4%, ECB President Mario Draghi indicated that the central bank stood ready to make additional bond purchases, if necessary, to support the region. The remarks helped to reduce the uncertainty in the eurozone and led to a fall in bond yields for many major countries in the region, including Spain and Italy.

The S&P 500's SPDR (ARCA:SPY) ETF rebounded from its long-term lower trend line this week in a march towards the upper bound of a rising wedge pattern. While rising wedges are usually seen as a reversal pattern, traders will be watching for a breakout of the $148 level or the $145 level on the downside. Additional support remains in place at $141.97 for the 50-day moving average and $135.40 for the 200-day moving average on the downside. Meanwhile, the relative strength index (RSI) suggests the latest move higher could struggle to keep its momentum, while those following the moving average convergence-divergence (MACD), will be watching for a key bullish crossover to signal a potential move higher.

SEE: Momentum And The Relative Strength Index

The Dow Jones Industrial Average SPDR (ARCA:DIA) ETF has also rebounded from its lower long-term trendline this week and looks largely similar to the SPY's chart. In this case, the index has already reached a key turning point at the upper trendline, as evidenced by the latest indecisive candlestick pattern on lower-than-average volume. Traders will be watching for a breakout of the upper trendline or a move down to the lower trendline at about $134. If that's broken, the index could see further downside to $132.29, the 50-day moving average, or $127.55, the 200-day moving average. Meanwhile, the RSI and MACD also paint a similar picture, with both indicators trading at elevated levels.

SEE: Trading The MACD Divergence

The PowerShares QQQ (Nasdaq:QQQ) ETF looks significantly less risky than the SPY or DIA charts at the moment after the index's retracement in mid-September. Traders will be watching for a test of either the lower trendline at around $67 or the upper trendline at around $71.50, as price movement seems to be in limbo right now. The lower trendline provides a particularly strong support as it lies at roughly the same level as the 61.8% Fibonacci retracement, while support below remains strong at about $64.12 (the 38.2% Fibonacci level and 200-day moving average). Meanwhile, the RSI and MACD indicators appears to be level, with traders watching for a possible bullish divergence in the MACD.

The iShares Russell 2000 Index (ARCA:IWN) ETF remains in the middle of a price channel and in roughly the same spot as the QQQ. Traders will be watching for either a breakout from the upper trendline at around $78 or the lower trend at around $72.50. The latter provides a particularly strong support level with the lower trendline and 50-day moving average occurring at roughly the same price level. Meanwhile, the RSI is reading at a relatively modest level of around 60.5, indicating that trading has been somewhat indecisive, but the MACD could be poised for a crossover that could provide a bullish signal.

SEE:Interpreting Support And Resistance Zones

The Bottom Line
The major U.S. indexes appear to be divided into two camps - over bought on one side approaching upper trend lines and very neutral in the case of the latter two indexes. Traders will therefore be watching for either a pullback (most likely) or a breakout from these levels, while waiting for the latter indexes to reach a better price point to enter a position.

Charts courtesy of stockcharts.com

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

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