S&P 500, Nasdaq 100 Technical Forecast: Bearish
- Stocks continued to show signs of struggle this week.
- Higher rates are on the horizon that and that’s certainly had impact on equities but the question remains as to how quickly and aggressively the Fed might begin to push for tighter policy. Markets are now pricing in the first FOMC rate hike since the pandemic began in March.
- Next week the Fed moves into a blackout period ahead of the January rate decision, which means no Fed-speak. And it’s also an option expiration week, and as our own Justin McQueen pointed out on Friday, this had a fairly negative impact on the S&P 500 last year.
Sentiment continues to shift in the US equity market as investors are gear up for a more-hawkish Federal Reserve. This week produced more signs that the FOMC is preparing to remove even more accommodation and markets are now expecting the bank to pose that first rate hike since 2018 in March of this year.
But, perhaps more importantly, the expectation is also growing for more hikes later in the year. While the Fed highlighted the possibility of 2-3 hikes at their December meeting, markets are now pricing in a median of four hikes this year, along with a 30% chance of at least five rate hikes. And while little remains certain around what impact those hikes might bring, market participants don’t appear ready to just wait around to see as stocks have started to show greater bearish pressure, as was witnessed in the first week of the year.
The S&P 500 opened this week with weakness, pushing all the way down to a support trendline before bouncing higher. That led to a bounce on Tuesday, helped along by some not-overly-hawkish comments from FOMC Chair Jerome Powell in front of Congress. But then Wednesday brought a 7% CPI read that started to excite rates markets again, and the entirety of those gains from Tuesday and Wednesday were taken-out on Thursday.
Another disappointing piece of data showed on Friday with retail sales reflecting a -1.9% contraction, helping to give bears another gust behind the sails as prices reverted back towards that longer-running trendline.
Technical Forecast for the S&P 500: Neutral
While there’s a case to be made for bearish scenarios, that argument appears even more attractive in the Nasdaq 100, which is more rate-sensitive and given current themes, tech could be very vulnerable should a deeper retracement take hold.
In the S&P 500, the 4490-4500 spot on the chart appears especially key for buyers to hold before a deeper fall may show: A breach of 4490 opens the door for bearish strategies, and the next significant spot of support isn’t until around the 4200 area comes into the picture.
S&P 500 Daily Price Chart
Chart prepared by James Stanley; S&P 500 on Tradingview
Nasdaq 100 Tips Below Channel Support
From an apples-to-apples comparison, the pain points have been a bit greater on the Nasdaq 100. A similarly-placed trendline, drawn from the November 2020 lows and holding support throughout 2021, can be seen on the tech-heavy index. And while the S&P 500 continues to dance on its version of that same trendline, the Nasdaq 100 has already begun violation, starting on Monday.
Bulls came in and bid the index back up to the 16k handle but that zone of resistance remained firm, and sellers came back into the picture on Thursday and continued to push through Friday morning trade.
At this point, support is holding at the 14.4% Fibonacci retracement of the pandemic run, taking the low from March of 2020 up to the November swing-high.
But, as shared right after the New Year opened for trade, there’s been a building divergence between the Nasdaq 100 and S&P 500. A series of lower-highs in the Nasdaq from November to December runs counter to the higher-highs printed in the S&P 500.
This further highlights the Nasdaq 100 as a viable vehicle for bearish scenarios in US equities. The forecast will be set to bearish for the week ahead.
Nasdaq 100 Technical Forecast: Bearish
Nasdaq 100 Daily Price Chart:
Chart prepared by James Stanley; Nasdaq 100 on Tradingview
— Written by James Stanley, Senior Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX