Coming into Tuesday's trading session, U.S. stock markets had been hammered. Less than a week ago, the Federal Reserve announced -- to no one's surprise -- that it would be cutting interest rates.

Stocks were volatile that Wednesday, July 31, but looked to be stabilizing on Thursday. In fact, it was as if investors had actually realized that lower interest rates were good for equities. But a trade-war tweet from President Trump sent markets lower again, kicking off an escalation of worry as China and the U.S. ratchet up tensions once more.

Now investors are trying to figure out if this a modest dip or a serious pullback. It doesn't help that some portions of the yield curve are inverting, raising red flags about a potential recession in the future.

As the fundamentals continue to change on a seemingly daily basis, let's look to see if the charts can provide any clarity.

Trading the S&P 500

Daily chart of SPY stock.
Daily chart of SPY stock.

Not every investor is capable of trading options on the S&P 500, nor is every investor approved to trade futures on the index. Instead, we'll use the equity version, the SPDR S&P 500 ETF (SPY - Get Report) , better known as the SPY.

Also, apologies on the complexity of the chart above, as several key levels are laid out.

As you can see with the SPY, it only took a few sessions for it to lose both its 50-day and 100-day moving averages. After six straight down days and a painful decline, bulls aren't doing much to salvage the damage, with the ETF only managing to put together an "inside day," or a day of indecision on Tuesday.

On the plus side for longs, the selling has temporarily subsided. It allows traders to better manage their risk when they can at least catch their breath!

In overnight futures trading, we saw the S&P 500 tag the 200-day moving average. Unfortunately, we did not see that in the regular trading hours. I still wouldn't be surprised if we break Monday's low of $281.72 at some point, flushing down to the 200-day currently at $276.69 and the 38.2% retracement at $276.07.

It will be important for this level to hold, otherwise risking a fall to the June lows at $271.77 and the 50% retracement at $169.51. That will put the SPY near the 10% correction territory.

On the upside, see if the SPY can reclaim the $288 level -- the highs from Q3 and Q4 2018 -- as well as the 100-day moving average. Over the 50-day moving average can propel SPY even higher, but remember to take it one level at a time.

Trading the Nasdaq

Daily chart of QQQ stock.
Daily chart of QQQ stock.

The PowerShares QQQ ETF (QQQ - Get Report) is setting up in a very similar fashion.

Tuesday's highs so far match Monday's high. So over the two-day range, nimble traders can look for a long setup up to the 100-day moving average $185.10. There it will also find the highs from Q3 and Q4 2018. Over the 50-day could spell more upside.

Below Monday's low will likely trigger a test of the 200-day moving average near $175 and the 38.2% at $176.65. If that fails to support the QQQ, a retest of the June lows near $169 is possible, with the 50% retracement coming into play at $169.51.

This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.