Market Summary for November 9, 2012

The markets in the United States moved lower this week after President Barack Obama won a second term in office. Election results showed a divided country that investors fear might not be able to compromise quickly enough to avoid a series of recent laws that will result in tax increases, spending cuts and a corresponding reduction in the deficit - or the so-called "fiscal cliff." According to the Congressional Budget Office, the sharp reduction in the deficit could increase the risk of another recession happening during 2013, even though it would be positive over the long-term.

Global markets reacted in a similar way to the election results, as a slowdown in the U.S. would negatively impact the world's economies. In Japan, the Nikkei 225 fell from over 9,000 to under 8,750 briefly this week, while the FTSE 100 in Europe didn't fare much better, falling from over 5,900 mid-week to briefly below 5,750 on Friday. Meanwhile, the eurozone itself is struggling from its worst weekly drop in five months, with Germany's economy expected to slow over the next two quarters and France poised to enter a recession.

The S&P 500 SPDR (ARCA:SPY) ETF moved lower this week along with many other U.S. indexes, but now lies near a support level at around $137.25. The price level is supported both by a 200-day moving average and prior highs in July of this year. A breakdown of this level could lead to a drop all of the way down to $132 while the next resistance on the upside is at the 50-day moving average at around $143.34, or an upper trendline at around $146. Meanwhile, the relative strength index (RSI) is reading at $35.72, indicating that the index may be oversold and due for a move sideways or higher. But the moving average convergence divergence (MACD) shows a relative free fall without any major turnaround signs yet.

SEE: A Primer On The MACD


The Dow Jones Industrial Average SPDR (ARCA:DIA) ETF broke down through a key support level on high volume this week, which included its 200-day moving average and prior highs from July at around $128.58. The next level of support on the downside could be as low as $124, where a prior high from May could provide some relief. While the index rebounded slightly, the latest bars were on relatively low volume, giving them little credibility. The MACD indicator seems to support this bearish sentiment by remaining in a relative free fall while the RSI is showing an oversold condition at $34.18 - although it has been below $50 since mid-October.

SEE: Trading The MACD Divergence



The PowerShares QQQ (Nasdaq:QQQ) ETF moved lower this week, breaking down through key support levels on high volume. These support levels included its 200-day moving average at $65.11 and prior highs at around $65. On the downside, the next major support may be the six-month low at around $60. While there was a slight recovery in the last bar, it has occurred on low volume giving it little credibility for traders. The RSI suggests that the index may be oversold, but the MACD confirms the strong downward bias that should guide trading for now.






The iShares Russell 2000 Index (ARCA:IWM) ETF moved lower this week, breaking down through its 200-day moving average at $80.08 and a key trendline. While the index rebounded from a key support level at around $78.58, the move occurred on relatively low volume casting some doubt on the durability of the move higher. Traders will be watching for a break of this key trendline support level, which if successful, could prompt a move down to a six-month low of $73. And while the RSI remains somewhat oversold, most traders view the MACD downtrend as showing little sign of a durable recovery quiet yet.

SEE: Interpreting Support And Resistance Zones






The Bottom Line
Many of the major U.S. indexes broke through key support levels this week, which is a very bearish sign for the coming week. These moves were fundamentally supported by fears about the so-called "fiscal cliff" that could prompt another recession in the U.S. Traders can expect these fears and those of a prolonged European slowdown to continue to weigh on the markets.

Next week, traders will be watching a number of key figures due out including retail sales and FOMC minutes on November 14, jobless claims and the consumer price index on November 15 and the industrial production reports due out on November 16.

Charts courtesy of stockcharts.com.

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