The major U.S. indexes moved higher over the past week despite weak new and existing home sales. New home sales fell to a sharply lower-than-expected annualized rate of 571,000, while existing home sales fell 1.3% to an annualized rate of 5.44 million. The primary driver behind the stock market rally has been better-than-expected second quarter earnings, higher expectations for tax reform and more dovish expectations for the Federal Reserve.
International markets moved lower over the past week. Japan's Nikkei 225 fell 0.09%; Germany's DAX 30 rose 0.02%; and Britain's FTSE 100 rose 1.2%. In Europe, the European Central Bank's plans to phase out its massive stimulus program early next year could slow down the region's strong recovery. In Asia, economists are concerned that a crackdown on backdoor borrowing by local governments in China could put a drag on growth. (See also: Time to Buy Alibaba Bonds? BofA Merrill Thinks So.)
The SPDR S&P 500 ETF (ARCA: SPY) rose 0.76% over the past week, as prices have trended sideways around the 50-day moving average at $244.76. Traders should watch for a breakout toward R1 resistance at $249.73 or a breakdown to test lower trendline and S1 support at around $242.00. Looking at technical indicators, the relative strength index (RSI) is neutral at 47.63, while the moving average convergence divergence (MACD) remains in a bearish crossover dating back to early August but could see a bullish crossover in the near future. (For more, see: Dividend and Large Cap: 2 ETFs to Watch on Outsized Volume.)
The SPDR Dow Jones Industrial Average ETF (ARCA: DIA) rose 0.77% over the past week. After moving toward the middle of its price channel, the index trended sideways at levels of roughly $218.00. Traders should watch for a breakout to R1 resistance at $220.47 or a breakdown to test trendline support levels at around $216.00. Looking at technical indicators, the RSI appears neutral at 52.83, while the MACD remains in a bearish downtrend.
The PowerShares QQQ Trust (NASDAQ: QQQ) rose 0.59% over the past week, making it the worst performing major index. As with other major indexes, QQQ trended sideways over the course of the week just above the 50-day moving average at $141.66. Traders should watch for a breakout to test trendline resistance at $144.00 or a breakdown to test lower trendline support at around $140.00. Looking at technical indicators, the RSI appears neutral at 47.39, but the MACD remains in a bearish downtrend. (For more, see: Two Sector ETFs to Watch in an Accelerating Economy.)
The iShares Russell 2000 Index ETF (ARCA: IWM) rose 1.48% over the past week, making it the best performing major index. After breaking above trendline resistance, the index remains at the low end of its prior price channel. Traders should watch for a breakout to S1 resistance levels at $138.81 or a breakdown back below key support levels to prior lows at around $132.00. Looking at technical indicators, the RSI appears neutral at 43.46, but the MACD could see a bullish crossover in the near term.
The Bottom Line
The major indexes edged higher over the past week, led by small caps in the Russell 2000. Next week, traders will be closely watching several key economic indicators, including consumer confidence on Aug. 29, GDP on Aug. 30, jobless claims on Aug. 31 and of course employment data on Sept. 1. Traders will also be keeping an eye on the upcoming debt ceiling negotiations and the likelihood of tax reform. (For additional reading, check out: 4 Key Indicators That Move the Markets.)
Note: Charts courtesy of StockCharts.com. As of the time of writing, the author had no holdings in the securities mentioned.