The markets in the United States moved marginally higher this week, with the Nasdaq leading the group and the Russell 2000 index seeing the least gains. Better than expected earnings helped send the major indexes near their five-year highs early during the week, but the lackluster report from Wells Fargo has cast a shadow on the banking sector, as the first bank to report earnings. Looking ahead, investors are also growing increasingly nervous about the flu season's impact on economic output.
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Global markets were largely mixed during the week, too. The Nikkei 225 surged over 1% following Shinzo Abe's new stimulus package, while the FTSE 100 rose 0.5% and the DAX fell just under 1% during the week. Traders will be closely watching Japan's economy given the $116 billion stimulus program that was just signed into law, which could boost domestic stocks and help its economy recover from years of stagflation and recent bouts of deflation.
The S&P 500 SPDR (ARCA:SPY) ETF rebounded from its 50-day moving average at 141.26 and broke through prior highs at around 146 before consolidating at the end of the week. Since the breakout of the 146 level occurred on low volume, traders should watch this level for a retest before a move higher, while the downside could potentially lead to the 50-day moving average or the lower trendline at about the same level. Technical indicators also remain mixed with the relative strength index (RSI) showing modestly overbought conditions at 64.49 and the MACD remaining in a bullish uptrend after a crossover that occurred earlier this month.
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The Dow Jones Industrial Average SPDR (ARCA:DIA) ETF rebounded from its 200-day moving average at 128.71 and broke through its 50-day moving average at 130.29 before resting just below prior highs at around 135.30. Traders should watch for this upper trendline to be tested, resulting in either a high volume breakout or a retracement back to the 50-day moving average at 130.29 before any potential move higher. As with the SPY index, the technical indicators remain mixed with the RSI showing marginally overbought conditions with a reading of 62.62 and the MACD remaining in a bullish uptrend after its bullish crossover back in late-November.
The PowerShares QQQ (Nasdaq:QQQ) ETF broke through its 50-day and 200-day moving averages before rebounding sharply this week near the 61.8% Fibonacci retracement level. Traders should watch for a move beyond these levels to prior highs at around 70.10 or a move down towards a lower trendline around 64. Traders should closely watch earnings from technology bellwethers like Apple Inc.'s January 23 announcement to determine future price swings in either direction. As with the other indexes, technical indicators remained mixed with a bullish MACD reading and a slightly overbought RSI at 61.48.
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The iShares Russell 2000 Index (ARCA:IWM) ETF extended its rally this week above both its 50-day and 200-day moving averages, breaking above prior highs of around 85.40 before taking a break. Traders should watch for this key level to be retested, with a breakdown potentially leading to the 50-day moving average at 81.96. As with the other major indexes, the technical indicators remained mixed with the RSI trading at 69.74 and the MACD remaining in a bullish pattern following its bullish crossover back in late-November.
The Bottom Line
The major U.S. indexes moved largely higher this week, driven by a strong projected earnings season. Despite this optimism, traders will be closely watching the impact of this flu season, as well as potentially lackluster bank earnings next week. In addition, traders will be watching a number of key economic indicators, including retail sales data due out on January 15, industrial production due out on January 16 and housing and jobs numbers due out on January 17.
Charts courtesy of stockcharts.com
At the time of writing, Cory Mitchell did not own any shares in any company mentioned in this article.