The major U.S. indexes moved higher last week ahead of the Federal Reserve Open Market Committee (FOMC) meeting and key inflation data this week. While an interest rate hike is nearly certain, the market will be closely monitoring the language that the central bank uses to describe the economy to try and gauge the pace of future rate hikes. Thursday's retail sales data and Friday's industrial production data could also move the markets.
Let's take a look at how the major indexes appear from a technical standpoint moving into the coming week.
Broad Market Finds Key Support
The SPDR S&P 500 ETF (NYSE ARCA: SPY) broke out from trendline and R1 resistance at $277.11 last week, which creates key technical support for the coming week. Traders will be watching for a breakout from these levels toward R2 resistance at $283.28 or prior all-time highs of $286.63. Looking at technical indicators, the relative strength index (RSI) is approaching overbought levels with a reading of 65.74, but the moving average convergence-divergence (MACD) continues to trend higher. (See also: 'Daredevil' Stock Market Poised to Drop 40%: Stockman.)
Industrials Break Out From Rising Wedge
The SPDR Dow Jones Industrial Average ETF (NYSE ARCA: DIA) broke out from a rising wedge chart pattern and R1 resistance at $251.75, creating key technical support for this week. Traders will be watching for a further breakout from these levels toward R2 resistance at $259.31 or prior all-time highs of $265.93. Looking at technical indicators, the relative strength index (RSI) is approaching overbought levels at 64.40, but the moving average convergence divergence (MACD) continues to trend modestly higher.
Small Caps Continue to Outperform
The iShares Russell 2000 ETF (NYSE ARCA: IWM) continues to outperform other major indexes as it moves toward R1 resistance at $167.54. Traders should watch for a breakout from these levels to R2 resistance at $172.30 on the upside. If the index breaks down below trendline support, there could be a move to the pivot point at $159.62 or trendline support at around $157.00. The relative strength index (RSI) has hit overbought levels at 70.17, but the moving average convergence divergence (MACD) remains strong. (For more, see: Soaring No-Name Stocks Signal a Market Top.)
Technology Stocks Struggle to Break Out
The PowerShares QQQ Trust (QQQ) briefly broke out from R1 resistance at $174.44 but quickly fell to trendline support last week. Traders will be watching to see if the index can rebound from these levels and prior all-time highs to test R2 resistance at $178.81. If the index breaks down from key support, it could see a move to the pivot point at $166.83. The relative strength index (RSI) is near overbought levels at 66.82, but the moving average convergence divergence (MACD) remains strong moving into the new week.
The major U.S. indexes have decent technical support moving into the new week, but a lot of the price action will depend on the FOMC meeting in the middle of the week, as well as retail sales and industrial production data coming out later in the week. (For additional reading, check out: The Trump Bull Market Is Far Short of 'Tremendous'.)
Charts courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.