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Stocks Tread Water After Yellen Remarks (SPY, DIA)

Major stock market indexes ended the week near where they started follow the Federal Reserve’s much-awaited commentary. On Friday, Chairwoman Janet Yellen voiced optimism about the economy and set expectations for higher interest rates. If the committee sets higher interest rates during the September or December FOMC meetings, it would show their faith that the U.S. economy is improving, but it could also risk sending the relatively lofty equity markets lower as bond yields could become more attractive.

International markets closed the week on a positive note. Japan’s Nikkei 225 fell 1.07%; Germany’s DAX 30 rose 0.33%; and, Britain’s FTSE 100 fell 0.2%. In Europe, economic indicators have been showing steady growth across the region despite worries about the impact of the ‘Brexit’. In Asia, the Japanese yen continues to move higher despite quantitative easing efforts on the part of its central bank and government fiscal stimulus.

The S&P 500 SPDR (ARCA: SPY) fell 0.24% over the past week as it continues to trade within its horizontal price channel. Traders should watch for a breakout from its R1 resistance at 220.75 to its R2 resistance at 224.39 or a move lower to its pivot point at 213.91 and 50-day moving average at 214.30. Looking at technical indicators, the RSI remains in overbought territory at 51.2, while the MACD remains in a bearish downtrend since late-July.

SPY Chart

The Dow Jones Industrial Average SPDR (ARCA: DIA) fell 0.42% over the past week and continues to trade within its horizontal price channel. Traders should watch for a breakout from R1 resistance at 187.20 to R2 resistance at 190.92 or a move lower to its pivot point at 181.70 or 50-day moving average at 182.00. Looking at technical indicators, the RSI appears relatively neutral at 57.43, while the MACD remains in a bearish downtrend dating back to late-July.

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DIA Chart

The PowerShares QQQ Trust (NASDAQ: QQQ) moved 0.42% lower over the past week and trades just below its R1 resistance at 118.32. Traders should watch for a breakout to R2 resistance at 121.42 or a move lower to the pivot point at 112.45 or 50-day moving average at 112.69. Looking at technical indicators, the RSI has moved lower, but remains lofty with a reading of 64.46. The MACD similarly points to a retracement with its bearish downtrend dating back to early August.

QQQ Chart

The iShares Russell 2000 Index ETF (ARCA: IWM) rose 0.28% over the past week and trades just below its R1 resistance at 124.45. Traders should watch for a breakout from these levels to R2 resistance at 127.83 or a move lower to its pivot point at 118.38 or its 50-day moving average at 118.94. Looking at technical indicators, the RSI trades at a lofty 63.42, while the MACD remains in a bearish downtrend that dates back to the beginning of the month.

IWM Chart

The Bottom Line

Most of the major indexes continue to trade with lofty RSI readings and bearish MACD readings that point to potential downside over the coming weeks. Next week, traders will be closely watching a number of key economic indicators including personal incomes on August 29, the ISM manufacturing index on September 1, and the employment report on September 2.

Charts courtesy of StockCharts.com.

As of the time of writing, the author had no holdings in the securities mentioned.

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