Stocks Rally on Improving Economic Outlook (SPY, DIA)

Stocks Rally on Improving Economic Outlook (SPY, DIA)

The major stock market indexes moved higher over the past week after an index of leading economic indicators rose a solid 0.5% in December. The highly-watched index reflects a continued growth outlook, but not yet acceleration, for the economy’s moderate pace.

At the same time, GDP data showed a modest 1.9% annualized growth rate for the fourth quarter, which pales in comparison to the 3.5% growth last quarter and the 2.2% consensus estimate.

International markets followed the U.S. markets lower over the past week. Japan’s Nikkei 225 rose 1.67%; Germany’s DAX 30 rose 1.58%; and, Britain’s FTSE 100 fell 0.21%. Over in Asia, Japan’s Consumer Price Index fell by 0.3% in 2016 for the first time in four years, which could be a blow to the central bank’s efforts to bolster the economy.

After breaking out from R1 resistance at $228.89, the index failed to breakout from its upper trend line resistance. Traders should watch for a breakout from R2 resistance at $231.94 or a move back down to its 50-day moving average at $223.87.

Looking at technical indicators, the RSI is overbought at around 63.29, but the MACD could be in the midst of a bullish crossover and reversal of its downtrend.

The Dow Jones Industrial Average SPDR (ARCA: DIA ) rose 1.35% over the past week. After reaching its R1 resistance at $200.88 and breaking through the psychological $200.00 barrier, the index trended modestly sideways.

Traders should watch for a breakout to R2 resistance at $204.44 or a move lower to its lower trend line at around $199.00 before a move higher. Looking at technical indicators, the RSI appears lofty at 67.45, but the MACD could see a bullish turnaround.