The major U.S. indices moved lower this week, led by small-cap stocks within the Russell 2000 index, which fell more than 2.5% after beating the other major indices for some time. U.S. manufacturing output barely rose in September, while previously owned homes recorded their largest drop in over three years, sending equities sharply lower this week. The weak housing and automotive sectors could prove to be a drag on the U.S. economic recovery.

Foreign markets performed modestly better this week, led by Japanese equities. Japan’s Nikkei 225 rose 0.8%, Britain’s FTSE 100 rose 0.1%, and Germany’s DAX 30 rose 0.3%. In the eurozone, most of the periphery countries are out of recession now, although unemployment remains a key concern. Japanese equities have also experienced favorable headwinds, with many large hedge funds starting to put money to work in the country’s marketplace.

The SPDR S&P 500 (ARCA:SPY) ETF fell 0.17%, as of early trading on Friday morning. After reaching its prior R2 resistance, the index moved lower this week and now trades around its trend line support at 175.50. Traders should watch for a breakdown from these levels to the pivot point at 172.61 or a move higher to its R1 resistance at 180.69. Looking at technical indicators, the RSI remains modestly overbought at 61.90, while the MACD appears ready for a bearish crossover that could signal downside potential ahead.

The PowerShares QQQ (NASDAQ:QQQ) ETF fell 0.28%, as of early trading on Friday morning. After surpassing its former R2 resistance, the index traded sideways this week above its trend line support at around 82.00. Traders should watch for a move higher to R1 resistance at 85.40 or a move lower through the trend line to the pivot point at 80.88. Looking at technical indicators, the RSI appears modestly overbought with a 64.95 reading, while the MACD may be ready for a bearish crossover that suggests potential downside ahead.

The SPDR Dow Jones Industrial Average (ARCA:DIA) ETF fell 0.03%, as of early trading on Friday morning. After nearly reaching its upper trend line resistance, the index moved lower this week towards its 50-day moving average at 151.88. Traders should watch for a move higher to retest trend line resistance at 158.00 or a move lower to that moving average. Looking at technical indicators, the RSI remains neutral at 58.83, while the MACD appears to be evening out, which suggests that traders are uncertain about future direction at the moment.

The iShares Russell 2000 Index (ARCA:IWM) ETF fell 2.52%, as of early trading on Friday morning. After nearly reaching its upper trend line resistance at around 112.00, the index fell sharply this week to its pivot point at 107.94. Traders should watch for a move lower to its trend line support and 50-day moving average at 106.20 or a rebound to its upper trend line resistance. Looking at technical indicators, the RSI appears modestly oversold at 48.77, while the MACD experienced a bearish crossover suggesting further downside.

The Bottom Line

The major U.S. indices moved largely lower this week, while many of the MACD indicators are nearing a bearish crossover, suggesting potential downside ahead. Next week, traders will be closely watching a number of key economic indicators, including GDP and Jobless Claims data due out on November 7th and Personal Income and Outlays due out on November 8th. Eyes will also be on Washington D.C., who has yet to sort out the details of the debt ceiling.

Charts courtesy of StockCharts.com.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

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