Stocks Move Lower Amid Growing Risks to the Rally

The major U.S. indexes moved lower over the shortened trading week. On Sunday, North Korea conducted a nuclear test with an explosion estimated to be greater than 140 kilotons – or 10 times stronger than anything it has tested before. By Friday, investors had shifted their attention to a massive cyberattack exposing the personal information of 143 million people, as well as Hurricane Irma, which appears on track to hit Florida’s south coast as a Category 4 storm.

International markets were mixed over the past week. Japan’s Nikkei 225 fell 2.12%; Germany’s DAX 30 rose 1.33%; and Britain’s FTSE 100 fell 0.81%. In Europe, the European Central Bank (ECB) indicated that it is considering how to wind down its easy money policies, with details set to emerge in October’s meeting. In Asia, Chinese exports continue to experience a slowdown, but its domestic economy has been resilient. (See also: China Is Slowing: Here Are the Investing Implications.)

The SPDR S&P 500 ETF (ARCA: SPY) fell 0.51% during the shortened trading week, making it the best performing major index. After dragging along lower trendline resistance in August, the index rebounded past its pivot point at $246.58 in recent sessions. Traders should watch for an ongoing move higher to R1 resistance at $250.32 or a move lower to retest trendline support at around $244.00. Looking at technical indicators, the relative strength index (RSI) moved back to neutral levels of 53.96, while the moving average convergence divergence (MACD) continues to trend higher. (For more, see: The S&P 500 Is 300 Days Above Its 200-Day Moving Average.)

The SPDR Dow Jones Industrial Average ETF (ARCA: DIA) fell 0.76% over the shortened trading week. After briefly rallying to the middle of its price channel, the index fell back to trendline support at around $218.00 this week. Traders should watch for a rebound to R1 resistance at $221.96 or a breakdown from trendline support to S2 support at $213.39. Looking at technical indicators, the RSI appears neutral at 51.33, and the MACD remains in a bearish downtrend.

The PowerShares QQQ Trust (NASDAQ: QQQ) fell 0.93% over the shortened trading week. After breaking out toward upper trendline resistance late last month, the index moved lower to pivot point support levels at $144.21. Traders should watch for a rebound to upper trendline and R1 resistance at $148.21 or a breakdown to the 50-day moving average at $142.51 or lower trendline support just below that level. Looking at technical indicators, the RSI appears neutral at 52.79, while the MACD remains in a tenuous uptrend. (See also: 3 Reasons Apple Will Keep Beating the Market: Bernstein.)

The iShares Russell 2000 Index ETF (ARCA: IWM) fell 1.23% over the shortened trading week, making it the worst performing major index. After briefly breaking out from the 50-day moving average earlier this month, the index fell to the pivot point at $138.68. Traders should watch for a breakout toward R1 resistance at $143.25 or a breakdown to the 200-day moving average at $137.02. Looking at technical indicators, the RSI appears neutral at 53.36, while the MACD remains in a bullish uptrend after hitting lows in late August.

The Bottom Line

The major indexes moved lower over the past week, which helped bring RSI readings back to neutral levels. Next week, traders will be closely watching several economic indicators, including jobless claims and consumer price index data on Sept. 14 as well as retail sales and consumer sentiment data on Sept. 15. Traders will also be keeping a close eye on the impact of Hurricane Irma and any new developments in North Korea. (For additional reading, check out: 9 Stocks to Own for a U.S. Recession.)

Note: Charts courtesy of StockCharts.com. As of the time of writing, the author had no holdings in the securities mentioned.

Source

Leave a Reply