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. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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?
  6. Charts & Patterns

    How To Use Volume To Improve Your Trading

    The basic guidelines to analyzing volume may not apply in all situations, but overall, they can help direct entry and exit decisions.
  7. Trading Strategies

    4 Common Active Trading Strategies

    Active trading entails buying and selling securities with the intent of profiting from short-term price movements.
  8. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  9. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
  10. Chart Advisor

    These 3 ETFs Suggest Commodities Are Headed Lower (COMT,CCX,DBC)

    The charts of these three exchange traded funds suggest that commodities are stuck in a downtrend and it doesn't look like it will reverse any time soon.
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