Stocks reached record highs last week despite an escalating trade war. President Trump imposed $200 billion worth of tariffs on Chinese goods – although at a lower rate than expected – and China retaliated with tariffs on another $60 billion of U.S. goods. Tensions rose even further by Friday after the U.S. imposed economic sanctions on a Chinese military agency and its director over the purchase of Russian weapons.
Investors will be watching to see if President Trump will respond with further tariffs on China. In recent comments, he suggested potential tariffs on an additional $267 billion in Chinese goods, which would cover the value of all goods that the U.S. buys from China. These negative sentiments were somewhat offset by White House economic advisor Larry Kudlow, who left open the possibility of a negotiated solution to the trade dispute. (See also: US-China Trade Friction May Last 20 Years: Jack Ma.)
In addition to trade war concerns, investors will also be keeping a close eye on the Federal Reserve's FOMC meeting on Tuesday and Wednesday, as well as gross domestic product data due out on Thursday. The unanimous consensus is that the central bank will hike interest rates by 25 basis points to a 2.00 to 2.25 percent range, thanks to a strong jobs market that's starting to push inflation higher.
S&P 500 Hits a New Record
The SPDR S&P 500 ETF (SPY) reached new all-time highs near R1 resistance at $293.65 before moving lower on Friday. Traders should watch for a breakout from these levels to upper trendline resistance at $296.00 or a move lower to retest trendline support at $289.00 over the coming week. Looking at technical indicators, the relative strength index (RSI) is approaching overbought levels at 68.27, while the moving average convergence divergence (MACD) remains in a relatively neutral pattern, which suggests that there could be some near-term consolidation.
Industrials Soar to New Highs
The SPDR Dow Jones Industrial Average ETF (DIA) broke out from a rising wedge pattern to fresh all-time highs near R2 resistance at $268.87. Traders should watch for a breakout from these levels to new highs or some consolidation above trendline and R1 support levels at around $264.00 over the coming week. Looking at technical indicators, the RSI appears very overbought with a reading of 77.22, but the MACD experienced a bullish crossover that could signal more long-term gains.
Tech Stocks Post Modest Gains
The Invesco QQQ Trust (QQQ) rebounded from its 50-day moving average and above its pivot point at $183.32 before falling to those levels by the end of the week. Traders should watch for a breakdown to test S1 support levels at $179.12 or a rebound to break back into its price channel above $185.00 over the coming week. Looking at technical indicators, the RSI appears neutral with a 53.70 reading, but the MACD remains in a bearish downtrend that could suggest a further move lower. (See also: China Could Target US Tech Stocks in Trade War: Goldman.)
Small Caps Continue Treading Water
The iShares Russell 2000 ETF (IWM) continued to trend sideways along its pivot point at around $170.30 last week. Traders should watch for a rebound off of these levels toward R1 and upper trendline resistance at $176.11 or a breakdown to S1 support at $167.21. Looking at technical indicators, the RSI appears neutral with a reading of 50.84, but the MACD remains in a strong bearish downtrend that could favor a breakdown. (For additional reading, check out: 3 Overlooked Small Caps for a Fast-Growth Portfolio.)
Charts courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.