After a volatile week, the U.S. stock market faces a monster week as the Crisis in Cyprus comes to a head and investors analyze a heavy stream of economic data.  Technical indicators have turned negative while fundamental headwinds continue to blow ever stronger.

On My ETF Radar

In the chart of the S&P 500 (NYSEARCA:SPY) below, we can see how many technical indicators have turned negative.

Stochastic has generated a short term “sell” signal, along with MACD, as these two oscillators indicate slowing momentum in the S&P 500. (NYSEARCA:SPY)  Furthermore, the S&P 500 (NYSEARCA:SPY) has stalled at resistance levels clustered around its all time closing high of 1565 set on October 9, 2007.

The index came within two points of that magical level on March 14th and since has made several failed attempts to breach the all time closing high.  Should the S&P 500 (NYSEARCA:SPY) reach that all time high and be able to hold it, more buyers will likely come into the market; however, should it fail, the stage would be set for a new steep decline of significant scale as the biggest triple top of all time remains in place.

chart courtesy of StockCharts.com

The Dow Jones Industrial Average (NYSEARCA:DIA) has also fallen back below its record high close of 14,539 set on March 14th, closing Friday at 14,512, but still remains above its 2007 high close  of 14,164.

The stock market and global financial markets now face a Monday deadline imposed by the ECB for a Cyprus plan to get its next round of bailout money and avoid financial collapse.  Banks are scheduled to reopen on Tuesday amid capital controls and ongoing uncertainty over which group of depositors will be forced to pay how much.

On Friday, the S&P 500 (NYSEARCA:SPY) gained 0.83%, the Dow Jones Industrial Average (NYSEARCA:DIA) climbed 0.63%, the Nasdaq 100 (NYSEARCA:QQQ) added 0.94% and the Russell 2000 (NYSEARCA:IWM) rose 0.25%.  For the week, major U.S. stock market indexes posted fractional declines.

ETF News You Can Really Use

The stock market was buffeted by news from Cyprus last week and the headlines from Europe will continue to dominate headlines and global stock market action in the upcoming days.  Nobody really cares about Cyprus, itself, but the key factors to watch are whether the European stance in this crisis signals a new strategy for dealing with the crisis and whether or not contagion takes hold in more important countries like Greece, Spain, Italy and Ireland.

If taxing bank deposits and capital control become new Eurogroup policy, expect the European crisis to take a significant turn for the worse.  Additionally, if bank depositors in the other weak countries along the Mediterranean start pulling their money from banks, we can expect a rapidly spreading crisis that is almost certainly bound to impact global financial markets including the U.S. stock market.

In economic news last week, Fed Chairman Ben Bernanke continued soothing stock markets around the world with his promise of ongoing bond purchases to the tune of $85 billion/month and hinted again that his tenure might be coming to an end at the end of the year.  Economic news was mostly positive as weekly jobless claims declined and single family housing starts rose.  Global PMI reports were expansionary in China and the United States, indicating modest economic growth, and the March Philadelphia Fed index rose to to 2.0 from last month’s -12.5.

On the bad news front, Cyprus continues to press ahead with its bank deposit levy in the face of ongoing protests and the nation’s banks stay closed until Tuesday.  FedEx reported weak earnings and a dismal forecast and Oracle reported weak Q3 sales.

German PMI slipped below 50 in March with a print of 48.9, putting the strongest economy in Europe into contraction territory and British GDP continues to weaken.

Next week brings significant economic data which investors will be watching:

Tuesday: February Durable Goods, January Case/Shiller, February New Home Sales, March Consumer Confidence

Wednesday: Pending Home Sales

Thursday: Weekly new unemployment claims, March Chicago PMI, Q4 GDP Revision

Friday: Consumer spending and income, March Consumer Sentiment

The big items to watch here will be consumer confidence and sentiment readings as the U.S. consumer makes up 70% of U.S. economic activity, and Thursday’s Q4 GDP revision as investors will be looking for an upward revision signalling stronger U.S. economic growth.

Bottom line:  While the U.S. economy is being underpinned by the Federal Reserve, the situation in Europe remains dangerous and dynamic and will be the major news maker in the upcoming week.  The potential for contagion remains high and risk remains elevated for the week ahead.

Disclaimer: The content included herein is for educational and informational purposes only, and readers agree to Wall Street Sector Selector’s Disclaimer, Terms of Service, and Privacy Policy before accessing or using this or any other publication by Wall Street Sector Selector or Ridgeline Media Group, LLC.