Tickers in this Article: SPY, DIA, IWM, QQQ
The markets in the United States moved higher throughout the week, but fell sharply during Friday's session amid gloomy economic data. Earlier this week, American retail sales, manufacturing and housing starts all surpassed economists' expectations, but weak existing home sales and a poor start to the earnings season across the board erased much of those gains on the last day of the week.

International markets fared a little better, but still showed a little weakness toward the end of the week. In Europe, the weakness stemmed from Angela Merkel's introduction of new requirements to use bailout funds to inject capital directly into ailing banks, which led to some concerns over Spain's ability to remove those costs from its troublingly high national debt.

The S&P 500's SPDR (ARCA:SPY) exchange traded fund (ETF) experienced a strong bullish move higher throughout the beginning of the week, but lost its momentum toward the end of the week. The drop could provide a buying opportunity given that the index is now trading near its lower trendline and 50-day moving average - two strong support levels - while the move downward occurred on relatively low levels of volume. And, the MACD also suggests that the index could see a long-term trend higher, if it's able to product a bullish crossover on such as rebound. But traders should tread carefully given the six-month bearish rising wedge (reversal) pattern emerging.

SEE: Using Pivot Points For Predictions


The Dow Jones Industrial Average SPDR (ARCA:DIA) ETF has already broken down through the bearish rising wedge pattern and failed to demonstrate a false breakdown. Currently, the index is trading at its 50-daying moving average support at around $133.18, but any breakdown from these levels could see a move all the way down to $128.26 at the 200-day moving average. Traders may want to watch for a breakdown of this key 50-day moving average as an opportunity to take a short position, but also keep an eye on the MACD indicator for any signs of a bullish crossover that could cloud the picture.

SEE: Trading The MACD Divergence



The PowerShares QQQ (Nasdaq:QQQ) ETF has also broken down through a key support trendline and could see downside to the $64.69 200-day moving average, driven by Google's very bearish earnings report this week. Traders will be watching for a breakdown of this key moving average that could lead to significant additional downside, with the next support level being the $60 low seen in early June of this year. The MACD indicator appears to be in free fall, while the RSI appears to be approaching oversold levels, suggesting that there could be a small rebound from the 200-day moving average before another significant move.

SEE: Momentum And The Relative Strength Index


The iShares Russell 2000 Index (ARCA:IWM) ETF has also broken down through a key support trendline and the 50-day moving average, and could see downside to the $79.76 200-day moving average. Traders may therefore want to consider taking a short position to capitalize on this downside to the 200-day moving average, while being mindful of the MACD indicator that could be poised for a bullish reversal. Finally, the RSI also appears to be moving into oversold territory, which could lead to some buying pressure over the next couple of weeks.


The Bottom Line
Many major U.S. indexes saw some reversal patterns this week, as weak housing data and corporate earnings reports dragged on the market. Traders will be closely watching corporate earnings next week, as it will likely determine the long-term direction of the markets this quarter. Meanwhile, U.S. jobless claims and FOMC minutes are also due out next week and could impact trading as well.

Charts courtesy of StockCharts.com

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

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