The markets in the United States moved marginally higher this week, after experiencing a boost mid-week from positive eurozone developments and fiscal cliff remarks. But despite this brief recovery, U.S. Treasury yields suggests that the market remains concerned about the fiscal cliff towards the end of the week, while an unexpected drop in consumer spending helped dampen the mood further.
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Global markets moved in much the same direction amid some optimism and some lingering concerns that the U.S. could enter into a recession if the fiscal cliff talks are unsuccessful. In particular, international indexes were boosted by a Greek debt buyback plan revealed earlier this week, and Japanese stimulus that could help prop up the troubled Asian economy.
The S&P 500's SPDR (ARCA:SPY) ETF extended its rally this week beyond the 200-day moving average at $137.78, but quickly hit resistance at the 50-day moving average at $142.30. The index is likely to continue trading within these two moving averages, while a breakout could result in a move to prior highs at around $147.40 or a breakdown could result in a move towards the recent prior low at around $135.40. Technical indicators are largely inconclusive, with a neutral relative strength index (RSI) reading and a moving average convergence divergence (MACD) that recently experienced a bullish crossover, but remains just below the zero line. Notably, volume was also light this week after the U.S. holiday.
The Dow Jones Industrial Average SPDR (ARCA:DIA) ETF extended its rally this week, but remains in much the same position as the S&P 500 SPDR. Currently, the index trades above its 200-day moving average at $128.46 and below its 50-day moving average at $131.41, with bearish looking candlestick patterns suggesting a possible reversal. Traders should watch for a breakout of breakdown from these moving averages that could result in a move either upwards to around $135.60 at prior highs or downwards to around $124.40 near prior lows. Like the S&P 500 SPDR, technical indicators are largely inconclusive with a neutral RSI reading of 52.62 and a MACD that has experienced a bullish crossover, but remains below the zero line.
The PowerShares QQQ (Nasdaq:QQQ) ETF extended its rally this week, but faces the same issues as the S&P 500 SPDR and Dow Jones Industrial Average SPDR. Currently, the index trades in a very tight range between its 200-day moving average at $65.30 and its 50-day moving average at $66.27. The downside is supported by prior highs at around $65, but a downward trend line at around $66 limits upside. Traders should watch for a breakout from either of these levels that could be followed by a significant technical movement. If the lower trendline breaks, the index could fall to lower support at around $61.80, while an upper trendline breakout could result in a move to $68. Like the other indexes, the RSI remains neutral and the MACD shows somewhat conflicting signals.
The iShares Russell 2000 Index (ARCA:IWM) ETF experienced a key breakout this week from its 50-day moving average at $81.86, a prior high trendline at around $81.60 and a third downward trendline at around the same level. Since the breakout didn't occur on significant volume, traders should carefully monitor the situation for signs of a reversal. A move upwards from these levels could see the index move to around $86.60, while a breakdown would see support at the 200-day moving average at $80.03 and prior lows at around $76. As with the other major U.S. indexes, technical indicators were largely inconclusive with a relatively neutral 57.65 reading on the RSI and a bullish crossover but near-zero line reading for the MACD.
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The Bottom Line
The major U.S. indexes moved higher this week, but many of them remain in limbo between key support and resistance levels. Fiscal cliff talks will likely be the catalyst for a breakout from either level, with the market largely undecided on where talks are heading. Meanwhile, the iShares Russell 2000 Index remains in the best shape having broken out higher.
Next week, traders will look forward to a number of economic indicators that may move the markets. The U.S. ISM Manufacturing Index is due out on December 3, which will provide insights into the industrial sector, while jobless claims and employment data is due out on December 6 and 7, which will shed light on the employment situation.
Charts courtesy of stockcharts.com.
At the time of writing, Justin Kuepper did not own any shares in any company mentioned in this article.