The major U.S. indexes moved lower over the shortened holiday week, with technology stocks falling more sharply than industrials. While there was relatively little in the way of economic reports last week, pending home sales posted a modest 0.2% gain, suggesting that they are not in line with the strength of final sales of existing homes. Investors will be keeping a close eye on the housing market moving into the new year given the significant gains seen throughout 2017 and the fact that housing tends to be a major driver of other economic factors.
International markets were mixed over the past week. Japan's Nikkei 225 fell 0.6%; Germany's DAX 30 fell 1.23%; and Britain's FTSE 100 rose 1.44%. In Europe, officials suggested that the European Central Bank's bond buying program would not be extended when it expires in September as inflation has continued to rebound. In Asia, investors have been growing increasingly concerned that China's tightening could constrain its growth outlook and drag down global economic growth moving into the new year.
The SPDR S&P 500 SPDR ETF (ARCA: SPY) fell 0.24% over the past week. After trending along R1 resistance at $267.46, the index broke down from key support levels this week. Traders should watch for a further breakdown to the pivot point and 50-day moving average at around $260.46 or a rebound to retest trendline resistance at around $269.50. Looking at technical indicators, the relative strength index (RSI) remains near overbought territory at 63.91, while the moving average convergence divergence (MACD) experienced a bearish crossover that could suggest further downside ahead. (See also: Stock Returns May Top 10% in 2018 Led By Big Banks.)
The SPDR Dow Jones Industrial Average ETF (ARCA: DIA) fell 0.01% over the past week, making it the best performing major index. After trending sideways for half of the month, the index is approaching lower trendline support at $240.29. Traders should watch for a rebound to R2 resistance at $250.30 or a breakdown to the pivot point and 50-day moving average at around $238.47. Looking at technical indicators, the RSI appears lofty at 71.07, while the MACD experienced a bearish crossover that could mean further downside ahead.
The PowerShares QQQ Trust (NASDAQ: QQQ) fell 1.02% over the past week, making it the worst performing major index. After hitting new highs in December, the index broke down from R1 support at $157.31 toward lower trendline support. Traders should watch for a rebound back above R1 resistance toward R2 resistance at $159.79 or a breakdown toward S1 support at around $151.40. Looking at technical indicators, the RSI is neutral at 51.93, but the MACD experienced a bearish crossover. (For more, see: Apple, Microsoft Will Drive 2018 Tech Earnings Growth: Moody's.)
The iShares Russell 2000 Index ETF (ARCA: IWM) fell 0.48% over the past week. After briefly rebounding, the index trended sideways at around $154.00 over the past week. Traders should watch for a breakdown from trendline support to the pivot point and 50-day moving average at $149.84 or a move toward trendline resistance and R1 resistance at $156.71. Looking at technical indicators, the RSI appears neutral at 54.73, but the MACD has trended sideways and provides few hints into future price movement.
The Bottom Line
The major indexes moved lower over the past week during the shortened holiday week. Next week, traders will be closely watching several key economic indicators, including the ISM Manufacturing Index and FOMC minutes on Jan. 3, ADP employment data on Jan. 4, and ISM Non-Manufacturing Index data on Jan. 5. (For additional reading, check out: Charles Schwab: Earnings Growth to Continue to Rise in 2018.)
Note: Charts courtesy of StockCharts.com. As of the time of writing, the author had no holdings in the securities mentioned.