Brocker.Org: Stocks Move Sharply Lower Amid Low Inflation, Rising Risk

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The major U.S. indexes moved sharply lower over the past week amid growing geopolitical tensions with North Korea and persistently weak inflation. The Labor Department’s Consumer Price Index, released on Friday, rose just 0.1% last month, which fell short of economist forecasts calling for a 0.2% increase. The weaker-than-expected reading could make it difficult for the Federal Reserve to continue its fiscal tightening efforts and plans to shrink its balance sheet.

International markets followed U.S. markets lower over the past week. Japan’s Nikkei 225 fell 1.53%; Germany’s DAX 30 fell 2.31%; and Britain’s FTSE 100 fell 2.75%. In Europe, a Reuters poll found that the European Central Bank is slightly more likely to announce a change to its asset purchase program in September following strong economic performance. In Asia, Chinese officials expressed concerns over the country’s growing property bubble. (See also: Basics of China’s Real Estate Industry.)

The S&P 500 SPDR ETF (ARCA: SPY) fell 1.33% over the past week. After briefly touching upper trendline resistance earlier this month, the index broke down from its pivot point and lower trendline support at around $245.00 this week. Traders should watch for a breakdown to S1 support at around $242.07 or a rebound above key support levels to the middle of its price channel next week. Looking at technical indicators, the relative strength index (RSI) is neutral at 41.35, while the moving average convergence divergence (MACD) experienced a bearish crossover that could signal a further downtrend. (For more, see: Why the S&P 500 Can Reach 2,650 in 2017.)

The SPDR Dow Jones Industrial Average ETF (ARCA: DIA) fell 0.85% over the past week, making it the best performing major index. After briefly touching R1 resistance at $221.00 earlier this month, the index moved toward trendline support at $218.00. Traders should watch for a breakdown to the pivot point at $216.73 or a rebound higher to retest R1 resistance levels. Looking at technical indicators, the RSI is neutral at 58.72, but the MACD could see a bearish crossover in the near term that could signal a downtrend. (See also: Disney, Not North Korea, Drags Down the Dow.)

Technical chart showing the performance of the SPDR Dow Jones Industrial Average ETF (DIA)

The PowerShares QQQ Trust (NASDAQ: QQQ) fell 1.09% over the past week. After trading sideways earlier this month, the index broke down to its pivot point and 50-day moving average at around $141.00. Traders should watch for a breakdown toward trendline support at $139.00 or a rebound back to trendline and R1 resistance at $147.53. Looking at technical indicators, the RSI appears neutral at 47.78, but the MACD experienced a bearish crossover at the beginning of the month that could signal further downside. (For more, check out: Top 4 ETFs to Track the Nasdaq.)

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

The iShares Russell 2000 Index ETF (ARCA: IWM) fell 2.67% over the past week, making it the worst performing major index. After trading near its 50-day moving average earlier this month, the index broke down to lower trendline and S2 support at around $136.50 this week. Traders should watch for a further breakdown from the 200-day moving average at $135.47 or a rebound to retest S1 support levels at $138.81. Looking at technical indicators, the RSI appears oversold at 31.62, but the MACD has taken a bearish downturn.

Technical chart showing the performance of the iShares Russell 2000 ETF (IWM)

The Bottom Line

The major indexes moved lower over the past week but have yet to approach oversold levels, with the exception of the Russell 2000 index. Next week, traders will be watching several key economic indicators, including retail sales on Aug. 15, FOMC​ minutes on Aug. 16, industrial production on Aug. 17 and consumer sentiment on Aug. 18. Traders will also be keeping an eye on evolving geopolitical risks surrounding North Korea. (For additional reading, check out: Why the US Dollar May Have Finally Hit a Bottom.)

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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