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
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.
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
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
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.