The markets in the United States moved sharply lower this week amid the ongoing uncertainty surrounding the so-called "fiscal cliff." If the President and congressional leaders cannot agree on a new plan by Jan. 1, 2013, approximately $600 billion in broad tax increases and spending cuts will automatically go into effect and tip the fragile economy back into a recession.

International markets followed the U.S. lead lower in many instances, since a recession in the U.S. would mean a big hit to global economic growth. Indecision in the eurozone has also taken a toll on those markets, while Japan has seen a rapid reversal in its growth. In the end, it appears that monetary stimulus is no longer effective in combating prolonged slowdowns.

The S&P 500 SPDR (ARCA:SPY) ETF fell sharply below its 200-day moving average at $137.42 this week, finding modest support at the 61.8% Fibonacci retracement level at $134.32. While the relative strength index (RSI) indicator appears to be oversold at $29.50, the moving average convergence divergence (MACD) indicator shows an ongoing bearish trend with little sign of reprieve. Looking forward, traders will be watching for some consolidation at the $134.32 Fibonacci level before reassessing the index for any move higher, but the 200-day moving average at $137.42 may cap an upside for the time being.

SEE: Retracement Or Reversal: Know The Difference

The S&P 500 SPDR ETF fell sharply below its 200-day moving average.



The Dow Jones Industrial Average SPDR (ARCA:DIA) ETF fell sharply below its 200-day moving average at $128.63, finding some support at prior lows of around $124. As with SPY, the RSI indicator appears to be oversold at $26.70, but the MACD indicator remains in a free fall with no signs of a turnaround yet. Traders will be watching for some consolidation at the $124 level before considering any moves higher, while the 200-day moving average at $128.63 will remain a key point of resistance that could limit near-term upside potential.

SEE: Trading The MACD Divergence

The DIA ETF fell sharply below its 200-day moving average.



The PowerShares QQQ (Nasdaq:QQQ) ETF moved sharply lower this week to well below its 200-day moving average at $65.17 to lower support levels at around $61.62. As with SPY and DIA, the RSI indicator appears to be oversold at $26.82, but the MACD suggests the opposite scenario, as it remains in a bearish free fall. Traders will be watching for the index to consolidate at the $62 level before making any potential moves higher, while the 200-day moving average at $65.17 will provide a key resistance level and limit near-term upside potential.

The QQQ ETF moved sharply lower this week.



The iShares Russell 2000 Index (ARCA:IWM) ETF moved sharply lower, along with many other U.S. indexes. It moved below its 200-day moving average at $80.06 to find support at a prior low at around $76.24. As with the other indexes, the RSI indicator appears oversold at around $27.70, while the MACD is stuck in an ongoing bearish free fall. Traders will be watching for consolidation at the $76 level before any moves higher, while the 200-day moving average will provide a ceiling at around $80 for any move higher.

SEE: A Primer On The MACD

The IWM ETF moved sharply lower along with many other U.S. indexes.



The Bottom Line
Major U.S. indexes moved sharply lower across the board this week, but now they rest on prior low support levels. With the U.S. Thanksgiving holiday coming up, trading is likely to be on the lighter side next week, especially towards the end of the week. But traders will be looking towards home sales and jobless claims to determine if the support levels will hold next week.

Existing home sales are due out on November 19 and housing starts data is due out the following day. Meanwhile, jobless claims and consumer sentiment data will be released on November 21 and provide the bulk of the potential movement.

Charts courtesy of stockcharts.com.

Related Articles
  1. Active Trading Fundamentals

    4 Stocks With Bullish Head and Shoulders Patterns for 2016 (PG, ETR)

    Discover analyses of the top four stocks with bullish head and shoulders patterns forming in 2016, and learn the prices at which they should be considered.
  2. Chart Advisor

    Uptrending Stocks Dwindle, a Few Remain (EW, WEC, WR)

    The number of uptrending stocks is shrinking, but here a few that remain in uptrends.
  3. Chart Advisor

    Trade Setups Based on Descending Trend Channels (LBTYK, RRC)

    These descending trend channels have provided reliable sell signals in the past, and are giving the signal again.
  4. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  5. Mutual Funds & ETFs

    Pimco’s Top Funds for Retirement Income

    Once you're living off the money you've saved for retirement, is it invested in the right assets? Here are some from PIMCO that may be good options.
  6. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  7. Mutual Funds & ETFs

    ETFs Can Be Safe Investments, If Used Correctly

    Learn about how ETFs can be a safe investment option if you know which funds to choose, including the basics of both indexed and leveraged ETFs.
  8. Mutual Funds & ETFs

    The Top 5 Large Cap Core ETFs for 2016 (VUG, SPLV)

    Look out for these five ETFs in 2016, and learn why investors should closely watch how the Federal Reserve moves heading into the new year.
  9. Chart Advisor

    Breakout Opportunity Stocks: CPA, GNRC, WWE

    After a period of contracting volatility, watch for breakouts and bigger moves to come in these stocks.
  10. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
RELATED FAQS
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  3. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  4. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  5. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  6. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center