October 26, 2012 Market Summary

By Justin Kuepper | October 26, 2012 AAA

The markets in the United States moved lower this week after jobless claims and pending home sales came in below economists' forecasts. Jobless claims came in at 369,000 compared to 372,000 that was forecasted, while pending home sales rose only 0.3% compared to the forecasted 2.5%. But, the real driver behind the decline was poor corporate earnings, including misses by major companies like Apple (Nasdaq:AAPL), General Electric (NYSE:GE) and Amazon (Nasdaq:AMZN).

Global markets have also struggled over the past week, with unemployment in the eurozone rising to "deplorably high" levels, according to ECB President Mario Draghi. Recently, the ECB lowered its projection for economic growth in the eurozone for 2012 and 2013, while also raising its forecast for inflation in the region. The bank expects the eurozone to drop 0.4% this year and grow 0.5% next year, while inflation could rise 2.5% in 2012 and 1.9% in 2013.

The S&P 500's SPDR (ARCA:SPY) ETF moved lower this week after breaking down from the 50-day moving average at $143.33. The index is now consolidating at a prior high from mid-August, but could move lower to the 200-day moving average at $136.77 before a more robust rebound takes hold. The moving average convergence divergence (MACD) indicator remains in a free fall with little sign of a crossover in the near-term, while the relative strength index (RSI) remains at 37.37, suggesting that the index may be somewhat oversold.

SEE: A Primer On The MACD

SPY's ETF moved lower this week after breaking down from the 50-day moving average.


The Dow Jones Industrial Average SPDR (ARCA:DIA) ETF also moved lower this week after breaking down from its 50-day moving average at $132.99. The index is now consolidating at a key 61.8% retracement level at $129.7, but could move lower to the 200-day moving average at $128.31 before a durable recovery is seen. Like the SPY index, the MACD indicator remains in a free fall with a widening gap while the RSI remains oversold at around 33.81, suggesting that the stock could rebound slightly before any move lower.

SEE: Momentum And The Relative Strength Index

The DIA ETF also moved lower this week after breaking down from its 50-day moving average.



The PowerShares QQQ (Nasdaq:QQQ) ETF followed the other major indexes with a move lower, breaking down from its 50-day moving average at $68.11. After briefly retesting the 50-day moving average, the index has fallen down to its 200-day moving average at $64.88 where it's likely to experience a bit of support. While the index's MACD remains in a free fall with a widening gap, the RSI remains oversold at 30.74, suggesting that the index could consolidate before any further downside.

SEE: Trading The MACD Divergence

The QQQ ETF followed the other major indexes with a move lower.



The iShares Russell 2000 Index (ARCA:IWM) ETF has also moved largely lower over the past week, breaking down from its 50-day moving average at $82.87. Currently, the index is trading in a tight range between the 50-day and 200-day moving average at $79.92, which should provide a strong base of support. Meanwhile, the MACD remains in a relative free fall suggesting further downside, and the RSI is reading at around 36.12 suggesting that the index may be poised for a break from the downside with some sideways movement.

The IWM ETF has also moved largely lower.



The Bottom Line
The major U.S. indexes moved lower this week after poor corporate earnings and economic readings took their toll. On a technical basis, the S&P 500 and Dow Jones Industrial Average are poised to see further downside, while the PowerShares QQQ and Russell 2000 Index remain at or near key support levels that could mean some sideways trading or a rebound.

Next week, traders will look towards a number of key economic indicators and additional earnings announcements. In particular, U.S. personal income and outlays will come out on October 29, U.S. jobless claims will come out on November 1, the ISM Manufacturing Index is due out on the same day and U.S. employment data is scheduled for November 2.

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

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