The markets in the United States ended the week roughly even, after a somewhat turbulent session. While stocks moved higher mid-week on positive economic data, they fell sharply towards the end of the week as leaders failed to reach an agreement on the so-called fiscal cliff. If no agreement is reached over the coming days, automatic tax increases and spending cuts that come into play on Jan. 1, 2013 could easily send the U.S. back into recession.
The global markets fared marginally better than the U.S. markets in many cases. Japan's Nikkei, Britain's FTSE and Germany's DAX were set to end the week marginally higher, as of mid-day Friday in the U.S. However, many international investors fear the same fiscal cliff as domestic investors in the U.S., given that a U.S. recession would lower export demand in many producing countries, thereby hurting the commodity prices supporting many others.
The S&P 500 SPDR (ARCA:SPY) ETF moved marginally lower this week back towards its 50-day moving average at 140.70. Bullish traders should watch for a rebound from this key level, which could result in a move up to prior resistance at 146. Bearish traders should watch for a breakdown of this level, which could result in downside to the 200-day moving average at 137.44. While the moving average convergence divergence (MACD) indicator remains in a bullish uptrend, traders should be mindful of a potential crossover if pricing trends remain bearish next week.
SEE: A Primer On The MACD
The Dow Jones Industrial Average SPDR (ARCA:DIA) ETF mimicked the S&P 500's move lower back towards its own 50-day moving average of 130.18. Bullish traders should watch for a rebound from this level, which could result in a move up to prior resistance at around 135. Bearish traders looking at a breakdown could see a move down to the 200-day moving average at 128.43. While the MACD remains in a bullish uptrend, traders should again watch for a potential crossover if trends remain bearish into next week.
SEE: Support & Resistance Basics
The PowerShares QQQ (Nasdaq:QQQ) ETF remained in a whipsaw pattern this week, ranging between 64.00 and 66.00, indicating indecisiveness over its future. Currently, the index is trading roughly around its 50-day moving average of 64.87 and its 200-day moving average at around 65.09 without a decisive breakout or breakdown. Bullish traders should watch for a rebound to prior highs of around 70, while bearish traders may want to watch for a breakdown to prior lows of around 61.50. Meanwhile, the MACD indicator remains close to a crossover that could signal the start of a bearish trend.
SEE: The Anatomy Of Trading Breakouts
The iShares Russell 2000 Index (ARCA:IWM) ETF moved higher this week, despite a brief retracement towards the end of the week. Bullish traders should watch for a rebound from the 82 Fibonacci retracement level, which could result in a move to prior highs of around 86. Bearish traders should watch for a breakdown from these levels, which could result in a move down to the 50-day moving average of 80.89 or the 200-day moving average of 79.54. Meanwhile, the MACD indicator remains solidly in a bullish uptrend, although the RSI indicator seems to show overbought conditions with a reading of 62.69.
The Bottom Line
The major U.S. indexes moved lower this week, primarily due to concerns about the fiscal cliff, which remained unsolved as of mid-day Friday. If these concerns are not resolved, traders could send these indexes into longer-term bearish trends, as the higher tax rates and spending cuts could once again push the U.S. into a recession. Next week, traders will also be watching U.S. jobless claims and new home sales data due out on December 27, as well as the Chicago PMI data and pending home sales due out on December 28.
Charts courtesy of stockcharts.com.
At the time of writing, Justin Kuepper did not own any shares in any company mentioned in this article.