The markets in the United States moved lower during the shortened holiday week as traders took an increasingly pessimistic view of the fiscal cliff negotiations. Consumer confidence figures also came in lower than many economists projected, adding to the bearish sentiment on the Street and suggesting that consumers remained cautious throughout the holiday shopping season.

International markets moved in the same direction, with the exception of Japan's Nikkei stock exchange. The Asian country's stock market was buoyed by expectations of an aggressive new stimulus under the new Prime Minister Shinzo Abe, where the country's weaker currency is expected to help dramatically boost exports and its economy.

The S&P 500's SPDR (ARCA:SPY) ETF moved lower this week, hovering just above the 50-day moving average at 140.64. Traders should watch for a rebound off of these levels or a breakdown below the 50-day moving average to the 200-day moving average at 137.58. With the bearish crossover of the moving average convergence difference (MACD) indicator this week, traders are likely considering the bearish scenario more closely, particularly if the fiscal cliff negotiations fail. Meanwhile, the relative strength index (RSI) indicator remains at a relatively neutral level, indicating that there's room for a move.

SEE: Trading The MACD Divergence

SPY breakdown

The Dow Jones Industrial Average's SPDR (ARCA:DIA) ETF moved lower this week, falling below the 50-day moving average at 130.04. Traders should watch for a sustained move below this level to the 200-day moving average 128.51 or potential upside limited to around 133 at prior highs. With a bearish MACD crossover this week, traders are again likely favoring the bearish positions, particularly if fiscal cliff negotiations fail. Meanwhile, the RSI indicator remains at a neutral level, indicating that there's room for a significant move.

DIA bearish

The PowerShares QQQ (Nasdaq:QQQ) ETF followed the same trend as DIA and SPY with a move lower this week, falling below the 50-day moving average at 64.72 and the 200-day moving average at 65.09. Traders should watch for a move down to prior lows at around 61.75, particularly if the fiscal cliff negotiations fail, or re-test of the key moving averages for those with a more bullish outlook. But, given the bearish MACD crossover this week, traders will be watching primarily for an additional downside before any upside. Meanwhile, the RSI indicator suggests that the index may be only slightly oversold at current levels.

SEE: Momentum And The Relative Strength Index

QQQ bearish

The iShares Russell 2000 Index (ARCA:IWM) ETF fared better than many other U.S. indexes this week, trading above its 50-day moving average at 81.02 and 200-day moving average at 79.61 and near its six-month high of 83.37. Traders should watch for either a test of the upper trendline at around 84.50 or a move down to the 50-day moving average at 81.02. Given that the MACD indicator appears ready for a bearish crossover, most traders will likely be watching for the downward scenario. Meanwhile, the RSI remains somewhat oversold at 57.12, suggesting that there would be room for a move to the downside.

SEE: Technical Analysis: Support And Resistance

IWM bearish

The Bottom Line
Major U.S. indexes moved lower this week amid increasing uncertainty about the fiscal cliff negotiations. Ultimately, the fiscal cliff decision will set the trend moving into the new year, with a failure resulting in deep losses and a success resulting in strong gains. Until then, many traders will likely be waiting on the sidelines until the deadline officially passes.

Next week, traders will also be watching a number of key economic indicators. The ISM Manufacturing Index will provide insight into the country's manufacturing economy on January 2; Jobless claims will provide insight into employment on January 3 and employment reports on January 4 will further elaborate on these sentiments.

Charts courtesy of stockcharts.com

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

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: First Trust Dow Jones Global Sel Div

    Find out about the First Trust Dow Jones Global Select Dividend Index Fund, and learn detailed information about characteristics and suitability of the fund.
  2. Mutual Funds & ETFs

    ETF Analysis: U.S 12 Month Natural Gas

    Learn about the United States 12 Month Natural Gas Fund, an exchange-traded fund that invests in 12-month futures contracts for natural gas.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Floating Rate Bond

    Explore detailed analysis and information of the iShares Floating Rate Bond ETF, and learn how to use this ETF as a defense against rising interest rates.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Short S&P500

    Find out information about the ProShares UltraPro Short S&P 500 exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR Barclays Investment Grd Fl Rt

    Learn more about the SPDR Barclays Investment Grade Floating Rate Fund, which tracks an index of highly rated floating debt securities.
  6. Mutual Funds & ETFs

    ETF Analysis: ALPS Medical Breakthroughs

    Learn more about a unique and innovative exchange-traded fund (ETF) in the biotechnology industry: the ALPS Medical Breakthroughs Fund.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares US Healthcare

    Learn about the iShares U.S. Healthcare exchange-traded fund, which invests in a wide range of health care providers, hospitals and home care facilities.
  8. Mutual Funds & ETFs

    Top 5 Japan Mutual Funds

    Discover five of the most popular and best-performing mutual funds offering investors direct exposure to equities of Japanese companies.
  9. Mutual Funds & ETFs

    ETF Analysis: BioShares Biotechnology Clinical Trials

    Learn more about the BioShares Biotechnology Clinical Trials Fund, a new and innovative fund focusing on breakthroughs in the health industry.
  10. Mutual Funds & ETFs

    ETF Analysis: First Trust NYSE Arca Biotech

    Learn more about the First Trust NYSE Arca Biotechnology Fund, a highly rated exchange-traded fund in the biotech space.
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  3. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  4. Indicator

    Indicators are statistics used to measure current conditions ...
  5. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  6. Lion economies

    A nickname given to Africa's growing economies.
RELATED FAQS
  1. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  2. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  3. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  4. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!