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Stocks Give Up Gains Since Election in Volatile Week

The major U.S. indexes moved sharply lower over the past week, reaching levels that haven’t been seen since before the 2016 presidential election. Despite strong earnings and economic data, the market has grown increasingly concerned over the prospect of inflation and rising interest rates. Yields on 30-year Treasury bonds have risen from 2.81% at the beginning of the year to 3.14% last week, while average hourly earnings posted a better-than-expected 2.9% increase in the latest nonfarm payrolls report.

International markets were lower over the past week. Japan’s Nikkei 225 fell 8.16%; Germany’s DAX 30 fell 5.3%; and Britain’s FTSE 100 fell 4.91%. In Europe, stocks experienced the worst sell-off since the Brexit vote amid concerns that the European Central Bank would cut back on stimulus and raise interest rates. In Asia, Japanese stocks were among the worst performers in the world, but most investors remain positive on the economy. Meanwhile, China’s economy bucked the trend in the developed world with a cooling rate of inflation.

The SPDR S&P 500 ETF (ARCA: SPY) fell 5.05% over the past week. After breaking down from several support levels, the index stabilized above S2 support at $259.41 by the end of the week. Traders should watch for a rebound from these levels to retest upper trendline, S1 resistance and 50-day moving average levels at $271.12 or a breakdown to test the 200-day moving average at $251.86. Looking at technical indicators, the relative strength index (RSI) fell sharply from overbought levels to oversold levels at 35.35, while the moving average convergence divergence (MACD) experienced a sharp bearish crossover that could signal more downside ahead before any improvements. (See also: A Stock Sell-Off Vocabulary Guide.)

 SPY)

The SPDR Dow Jones Industrial Average (ARCA: DIA) fell 5.05% over the past week. After breaking down from several key support levels, the index stabilized near S2 support at $239.31 by the end of the week. Traders should watch for a rebound to retest S1 resistance, trendline resistance and 50-day moving average levels at $250.71 or a breakdown from S2 support to the 200-day moving average at $226.25. Looking at technical indicators, the RSI moved to oversold levels at 36.13, but the MACD experienced a sharp bearish crossover.Technical chart showing the performance of the SPDR Dow Jones Industrial Average ETF (DIA)

The PowerShares QQQ Trust (NASDAQ: QQQ) fell 5.16% over the past week, making it the worst performing major index. After breaking down from several key support levels, the index briefly hit S2 support at $150.73 before rebounding. Traders should watch for a breakout from trendline resistance, S1 resistance and the 50-day moving average at $160.33 to the pivot point at $165.51 or a breakdown from S2 support to the 200-day moving average at $147.79. Looking at technical indicators, the RSI appears marginally oversold at 38.54, but the MACD remains in a significant bearish downtrend. (For more, see: Stock Market Woes: The Recovery Eats Its Children.)

Technical chart showing the performance of the Powershares QQQ Trust (QQQ)

The iShares Russell 2000 Index ETF (ARCA: IWM) fell 4.58% over the past week, making it the best performing major index. After breaking down from several key support levels, the index stabilized around the 200-day moving average at $144.59. Traders should watch for a breakdown from these levels to fresh lows or a rebound to retest the S2 resistance levels at $148.32. Looking at technical indicators, the RSI appears oversold at 32.83, but the MACD experienced a sharp bearish crossover that could signal more downside ahead.

 IWM)

The Bottom Line

The major indexes moved sharply lower over the past week. While RSI readings point to oversold levels, the MACD remains in a bearish downtrend for all of the major indexes. Next week, traders will be closely watching several key economic indicators, including the consumer price index on Feb. 14, industrial production on Feb. 15 and consumer sentiment  on Feb. 16. The market will also be keeping a close eye on ongoing political risks facing the U.S. economy and others around the world. (For additional reading, check out: 8 Ways to Survive a Market Downturn.)

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

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Cobi Jones writes about the blockchain community in the US. He is an entrepreneur and private investor in blockchain projects