Open account
☰
Open account
✖

S&P technical analysis: Bears back in town or temporary respite?

Article By: ,  Market Analyst
November 16, 2023 6:00 PM
  • S&P 500 technical analysis: Doji candle at 78.6% Fibonacci retracement level calls for caution
  • Nasdaq technical analysis: Inverted hammer off summer highs point to possible bearish reversal… or a trap
  • US Stocks have surged higher in recent weeks on hopes of peak interest rates

 

Technical analysis: Nasdaq, S&P and DAX - Video

 

 

In recent weeks, the US stock markets have been experiencing one of their most favourable periods this year. This positive trend can be attributed to the prevailing optimism that interest rates will soon fall, given the downward trajectory of inflation. However, it's worth noting that the markets, particularly the tech-heavy Nasdaq and S&P 500 both seem somewhat overbought following a rapid three-week surge. This raises the possibility of a short-term pullback. Despite this, it's essential to differentiate any potential short-term weakness from a bearish reversal, unless price action on the charts or a strong pushback from the Federal Reserve indicate otherwise.

 

 

S&P 500 technical analysis

 

Yesterday saw the likes of the S&P and Nasdaq extend their impressive three-week rally, with the latter rising to test the July high, marking its highest point since January 2022. These gains were spurred by fresh US data revealing further signs of easing inflationary pressures, notably a surprising decline in prices paid to US producers in October, the most significant drop since April 2020. However, upon the opening of the cash markets, the Nasdaq, S&P and Russell all retreated from their earlier highs and closed near or below their opening levels.

 

The resulting price action left behind a small doji candle. It is all about follow-through now. Does it go below Wednesday’s low and hold there, or do we continue pressing higher? The bears would want to see some downside follow-through to before stepping back in, while the bulls will probably prefer a bit of bullish consolidation rather than a sharp sell-off, in order to help work off overbought conditions through time than price action.

 

In the event the index breaks Wednesday’s low at 4495 decisively, then this could pave the way for a potential drop to 4415 area, the base of this week’s breakout.

Nasdaq 100 technical analysis

 

From a technical point of view, the sharp 3-week rally means the Nasdaq is now at ‘overbought’ levels, as indicated by the momentum indicator RSI, in the sub-chart, moving above the 70 threshold.

 

Interestingly, the RSI ‘overbought’ threshold has been reached with the underlying Nasdaq index testing its summer high of around 15933 yesterday when it couldn’t hold onto its earlier gains. The potential for the index to form a double top or a false break reversal pattern is therefore there. We just need to see some downside follow-through below Wednesday’s low now to trigger some momentum selling pressure. Even if we don’t see a major bearish reversal here, a small correction cannot be ruled out at this stage.

 

The underlying trend is bullish, so we would expect dips back to major support levels to hold. In the event of a breakdown, the key support level that will then become into focus would at 15533, the high from Monday.

 

For now, there are only modest signs of potential trouble for the bulls. But with everything mentioned, the bulls may wish to proceed with extra care from here, after enjoying a sharp three-week rally. The bears meanwhile will need to await further price action and a clear indication of a short-term top before pouncing again. A clean break below Wednesday’s low could be the trigger.

 

 

Source for all charts used in this article: TradingView.com

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

 

How to trade with City Index

You can trade with City Index by following these four easy steps:

  1. Open an account, or log in if you’re already a customer 

    • Open an account in the UK
    • Open an account in Australia
    • Open an account in Singapore

  2. Search for the company you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade

 

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

© City Index 2024