Stocks moved sharply lower last week after 10-year Treasury yields reached 3.25% mid-week. Rising interest rates tend to draw capital from equities to bonds, and these trends are reinforced by a flight to safety. Investors are increasingly seeking out safe-haven assets that offer more attractive yields while locking in their multi-year gains on equities.
These trends could continue to play out over the coming weeks as investors reassess their portfolios. Corporate earnings were strong during the first three quarters of the year, but they're expected to slow down next year as the impact of tax cuts fades and wages begin to rise. The trade war could further increase material costs for many industries and businesses.
Next week, traders will be watching several key economic indicators, including industrial production on Oct. 16, jobless claims on Oct. 18 and existing home sales on Oct. 19. The market will also be keeping a close eye on the evolving Sino-U.S. trade war that could spark wider losses.
S&P 500 Losses Continue to Mount
The SPDR S&P 500 ETF Trust (SPY) fell 3.86% last week and has dropped more than 5% over the past month. After breaking down from trendline support, the index broke through all key support levels to trendline support at around $272.00. Traders should watch for a rebound from these levels to retest S2 resistance at $281.98 or a breakdown to test prior lows at around $260.00. Looking at technical indicators, the relative strength index (RSI) appears oversold at 29.38, but the moving average convergence divergence (MACD) remains in a sharp downward spiral.
Industrials Fall Sharply Lower
The SPDR Dow Jones Industrial Average (DIA) fell 3.77% last week. After breaking below trendline support, the index fell to the 200-day moving average at $249.44 before finding its footing. Traders should watch for some consolidation above these levels and a potential move to the 50-day moving average and S1 resistance at around $259.00 or a breakdown from trendline support to retest prior lows at around $240.00. The RSI appears oversold at 34.55, but the MACD remains in a bearish downtrend.
Tech Stocks See Modest Losses
The PowerShares QQQ Trust (QQQ) fell 2.8% last week. After breaking through trendline support to trendline support at around $168.00, the index recovered some ground by the end of last week. Traders should watch for a move to retest S2 resistance at $177.76 or a breakdown from trendline support to prior lows of around $160.00. Looking at technical indicators, the RSI appears oversold at 36.74, but the MACD remains in a strong bearish downtrend.
Small Caps Continue to Plummet
The iShares Russell 2000 Index (IWM) fell 5.04% last week and has declined more than 10% over the past month. After breaking down from trendline support earlier this month, the index continued its march lower last week to hit prior lows of around $152.00. Traders should watch for a rebound from these levels toward the 200-day moving average at $160.19 or a breakdown from $152.00 support levels to fresh lows. The RSI appears very oversold at 16.95, but the MACD remains in a long bearish downtrend.
Charts courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.