Weekly Review 12.12.16 -18.12.16
Stocks Give Back Gains After Monster Rally (SPY, DIA)
The major stock market indexes moved marginally lower over the past week. On Wednesday, the Federal Reserve raised interest rates by 25 basis points to a 50 to 75 basis point range, citing a ‘solid’ job market, ‘moderate’ household spending, and ‘soft’ business investment. Retail sales rose a less-than-expected 0.1% in November due to a contraction in auto sales, but discretionary spending in restaurants and other categories remained strong. Industrial production also contracted 0.4% due to unseasonable warmth and weak auto manufacturing.
International markets followed the U.S. markets lower over the past week. Japan’s Nikkei 225 rose 0.28%; Germany’s DAX 30 fell 1.74%; and, Britain’s FTSE 100 fell 1.47%. In Europe, the purchasing managers’ index rose reached 53.9 in December as the regional economy continues to grow and inflation finally surfaces. In Asia, Chinese regulators halted bond trading as investors bet that the long, credit-fueled bull market may be coming to an end sooner rather than later.
The S&P 500 SPDR fell 1.05% over the past week, making it the worst performing major index. After breaking through its R1 resistance at $224.02, the index moved marginally lower to its trend line support. Traders should watch for a rebound to R2 resistance at $228.95 or a breakdown to its reaction high of $220.00. Looking at technical indicators, the RSI appears overbought at 68.88, while the MACD remains in bullish territory since its close call in early-December.
The Dow Jones Industrial Average fell 0.39% over the past week, making it the best performing major index. After breaking out from its R1 resistance at $195.95, the index reached nearly $200.00 before stalling. Traders should watch for a breakout to R2 resistance at $200.94 or a move lower to re-test its R1 resistance. Looking at technical indicators, the RSI remains extremely overbought at 80.71, while the MACD remains in a bullish uptrend.
The PowerShares QQQ Trust Nasdaq fell 0.8% over the past week. After briefly breaking out from R1 resistance at $119.84, the index has trended sideways around those levels this week. Traders should watch for a breakout to R2 resistance at $122.52 or a move lower to its 50-day moving average at $117.24. Looking at technical indicators, the RSI appears neutral at 59.22 and the MACD remains in a bullish uptrend following its crossover in early-December.
The iShares Russell 2000 Index ETF fell 0.42% over the past week. After briefly touching its R1 resistance at $138.85, the index moved below its trend line support at around $137.00. Traders should watch for a breakout to R2 resistance at $146.08 or a move lower to the pivot point and 50-day moving average at around $126.70. Looking at technical indicators, the RSI appears lofty at 65.82 while the MACD recently experienced the start of a bearish crossover.
The Bottom Line
The major market indexes moved lower over the past week with lofty Relative Strength Index readings pointing to overbought conditions. Next week, traders will be closely watching several key economic indicators, including existing home sales on Dec. 21, GDP data on Dec. 22, and new home sales on Dec. 23.