Stocks Erase 2018's Gains as Busy Week Approaches

Stocks moved sharply lower last week after third quarter earnings failed to live up to investor expectations. According to FactSet, more than three-quarters of S&P 500 companies that reported third quarter earnings had positive earnings surprises, and more than half reported positive revenue surprises. However, most companies offered negative fourth quarter earnings guidance, which caused shares to move lower.

Tech stocks were especially hard hit amid concerns of a slowdown, with Amazon.com, Inc. (AMZN) and Alphabet Inc. (GOOGL) missing expectations. But even industrials giants like Caterpillar Inc. (CAT) and 3M Company (MMM) missed expectations. Many investors are wondering if the strong fundamentals seen earlier this year are starting to wane in recent months.

Traders will be keeping a close eye on consumer confidence data due on Oct. 30, ADP employment data on Oct. 31, ISM manufacturing index data on Nov. 1, and of course non-farm payrolls due out on Nov. 2. Investors will also be keeping a close eye on any new developments in the U.S.-China trade war that continues to take a toll on the market.

The S&P 500 SPDR ETF (SPY) shares fell 4.21% last week. Since breaking down from trendline support earlier this month, the index has fallen sharply to prior trendline support. Traders should watch for a breakdown from these levels to fresh lows or a rebound to retest the 200-day moving average at around $274.44. The relative strength index (RSI) appears oversold with a reading of 30.34, but the moving average convergence divergence (MACD) remains in a bearish downtrend that suggests further downside ahead.

The Dow Jones Industrial Average ETF (DIA) shares fell 3.34% last week, making it the best performing major index. After breaking down from trendline support earlier this month, the index moved sharply lower to trendline and 200-day moving average support at around $249.54. Traders should watch for a rebound to retest S2 support at $252.63 or a breakdown lower to trendline support at around $239.00. The RSI appears moderately oversold at 35.05, but the MACD remains in a bearish downtrend.

The PowerShares QQQ Trust (QQQ) shares fell 4.23% last week, making it the worst performing major index. Since breaking down from key support earlier this month, the index moved sharply lower below the 200-day moving average. Traders should watch for a rebound above these levels to S2 support at $177.76 or a breakdown to fresh lows. Looking at technical indicators, the RSI appears slightly oversold at 36.28, but the MACD remains in a strong bearish downtrend.

The iShares Russell 2000 Index ETF (IWM) shares fell 4.16% last week. After breaking down from key trendline support, the index has broken through key support levels to fresh lows. Traders should watch for a rebound to the 200-day moving average at around $160.16 or a breakdown lower to new lows over the coming week. The RSI appears very oversold with a reading of 27.98, but the MACD remains in a downtrend.

Charts courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.