U.S. Indices Technical Outlook:
- S&P 500 to pull off but looking for short-lived recovery
- Nasdaq 100 lagging and will need to hold soon
- Dow 200-day MA not far away on a little more strength
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S&P 500, Dow Jones, Nasdaq 100 Technical Outlook for the Days Ahead
Stocks have continued to rally in-line with expectations coming into this week, but we have reached a point where we may see a pullback develop before another pop higher. The S&P turned off a swing low created in early September, and did so by posting a reversal candle.
Between that and the fact that the Nasdaq 100 continues to lag behind suggests that we may see the market jab lower in the near-term. It will be important that the NDX does hold up relatively well, and ideally see it outperform soon, even if that means selling off less than the broader market before actually leading to the top-side.
If the NDX and its core holdings of market darlings can’t get into gear then the market could be in for some more trouble. But before getting to that we will need to see how a pullback here unfolds.
Looking at the techs of the S&P we had identified an inverse head-and-shoulders previously, and on that so far so good. The trend-line from August was broken shortly after the neckline. What I will be watching is if a pullback can remain relatively shallow either holding around 3806 or down by the neckline near 3725. A hold in that zone (looking more like the lower portion at this time) could offer up another long opportunity for would-be longs.
If we see stocks start to melt lower with the NDX heading back to the lows long before the S&P and Dow, then it may be time to rethink the bear market rally trade. Which at this time all this is viewed as, a recovery bounce in a prolonged bear market.
S&P 500 Daily Chart
S&P 500 Chart by TradingView
The Nasdaq 100 needs to hold up here soon, and may very well do so by posting a broader inverse head-and-shoulders pattern. I was looking at it previously with the idea that the low around 10962 would be the right shoulder, but a larger more symmetrical pattern could emerge. So far the good news for the NDX despite its laggard status, is that it broke out of the channel it was stuck in from August. This doesn’t change a trend in-of-itself, but helps. If a higher-low (right shoulder) can form here on this pullback then tech stocks and the market as a whole could be good for another sizable leg higher. The area just beneath 11k is viewed as very important for this outlook.
Nasdaq 100 Daily Chart
Nasdaq 100 Chart by TradingView
TheDow Joneshas been the leader through this rally, and that isn’t a good thing. The NDX will need to take the baton soon if the broader market is to continue higher. With that said, the 200-day MA is not too far away and could be hit following a pullback. The index is extended to be clear, so risk is skewed towards a pullback and perhaps turn into the laggard should we get another leg higher.
Dow Jones Daily Chart
Dow Jones Chart by TradingView
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—Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX