The major U.S. indices moved significantly lower this week, after U.S. Federal Reserve Chairman Ben Bernanke indicated that quantitative easing (QE) would likely end next year. With bond buying currently set at $85 billion per month, the Federal Reserve will begin scaling back the buying with a projected end around mid-2014, according to Bernanke’s comments. Investors began selling equities and bonds in anticipation of the move, while the U.S. dollar reached new highs.
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Foreign markets had a mixed reaction to the Federal Reserve’s surprise decision, given that many of their currencies appreciated against the U.S. dollar. Japan’s Nikkei 225 rose 4.28%, Britain’s FTSE 100 fell 3.05%, and Germany’s DAX 30 fell 3.6%. The decline in currency valuations could help boost exports and improve foreign equity valuations, but the Federal Reserve’s move could also reduce global growth rates, putting downside pressure on the same equities.
The SPDR S&P 500 (ARCA:SPY) ETF fell 3.27%, as of early trading on Friday morning. After breaking down from its 50-day moving average and lower channel support at 161.17, the index found some support at the S1 pivot point support at 157.17 this week. Traders should watch for a breakdown lower to the S2 pivot point support at 151.77 or a retest of the 50-day moving average and lower trend line support turned resistance. Looking at technical indicators, the RSI now appears oversold, while the MACD remains in a bearish downward trend.
The PowerShares QQQ (NASDAQ:QQQ) ETF fell 3.06%, as of early trading on Friday morning. After breaking down from its 50-day moving average at 71.91, the index remains just above its lower trend line support at around 70.00. Traders should watch for a breakdown of this support level to the 200-day moving average and S2 resistance at around 68.01 or a rebound to the 50-day moving average or pivot point level o 72.82. Looking at technical indicators, the RSI has moved to oversold conditions, while the MACD remains in a bearish downtrend.
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The SPDR Dow Jones Industrial Average (ARCA:DIA) ETF fell 2.41%, as of early trading on Friday morning. After failing to break through lower trend line resistance at about 152.50, the index fell sharply below the 50-day moving average of 149.51 and remains at the S1 pivot point resistance level of 155.12. Traders should watch for a potential breakdown to the 141.54 level or a move back up to retest the lower trend line resistance. Looking at technical indicators, the RSI appears to be oversold, while the MACD remains in a bearish downtrend.
The iShares Russell 2000 Index (ARCA:IWM) ETF fell 3.08%, as of early trading on Friday morning. After moving below the 50-day moving average at 95.95, the index reached lower trend line support at around 95.19. Traders should watch for a potential breakdown to the S1 pivot point support at 92.91 or a rebound higher to the 96.65 pivot point level. Looking at technical indicators, the RSI appears modestly oversold, while the MACD remains bearish.
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The Bottom Line
The major U.S. indices moved lower this week, with the QQQ and IWM indices remaining just above key support levels. Looking ahead, traders will be watching numerous economic indicators due out next week, including durable goods orders and new home sales on June 25, GDP figures on June 26, and jobless claims and personal incomes on June 27. Of course, further hints from the Federal Reserve and global market performance should also be watched.
Charts courtesy of StockCharts.com.