S&P 500, SPX, NASDAQ 100, NDX – OUTLOOK:
- The S&P 500 index encounters stiff resistance.
- The upward momentum is strong, but the Nasdaq 100 index is looking a bit overbought for now.
- What’s next for the two indices?
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The Fundamentals of Trend Trading
The S&P 500 and the Nasdaq 100 index are looking overbought and have run into stiff resistance areas, raising the risk of a minor retreat, especially if Fed Chair Powell’s tone later Wednesday is hawkish. However, any retreat is likely to be short lived given improved upward momentum on higher timeframe charts.
Markets will be looking for a justification for its dovish pricing from Powell’s congressional testimony due Wednesday and Thursday. Rate futures currently show a 78% chance of a Fed rate hike in July, with no hike until the end of the year. In contrast, the US Federal Reserve last week said that rates may need to rise by as much as 50 basis points by the end of the year on slower-than-expected moderation in inflation and resilience of the US economy.
A hawkish rhetoric by the Fed chair could provide an excuse to unwind some of the longs in equities, which appear to be overbought.
Nasdaq 100 Daily Chart
Chart Created by Manish Jaradi Using TradingView; Refer to notes at the bottom of the page
Nasdaq 100: Overbought, but no sign of reversal
From a directional perspective, the trend remains up for the Nasdaq 100 and the S&P 500 index, as the colour-coded daily candlestick charts show. Moreover, in recent weeks, the uptrend has become more entrenched, looking at momentum on the daily and weekly charts, thanks to the raising of the US debt ceiling and the resilience of the global economy, as recent updates have highlighted. SeeMay 6,May 15, andMay 18updates.
Nasdaq 100 Daily Chart
The Nasdaq 100 index in May rose above a stiff hurdle at the August 2022 high of 13720 but is now looking overbought in the near term. The index is now testing a big hurdle on the upper edge of a rising pitchfork channel from the end of 2022, near the April 2022 high of 15265. A minor retreat can’t be ruled out. Any retreat could be contained around the 30-day moving average (now at about 14250) – the moving average has served as good support since the beginning of the year. On the upside, the next level to watch would be the 2021 record high of 16765.
S&P 500 Daily Chart
S&P 500: Meets tough resistance
The S&P 500 index has encountered serious hurdles recently after rising above the August high of 4325, including the upper edge of a rising channel from December and a rising uptrend line from the end of 2022. However, unless the index falls decisively below the 30-day moving average, the path of least resistance remains sideways to up. The next level to watch would be the April 2022 high of 4637, potentially the 2022 record high of 4819.
Note: The above colour-coded chart(s) is(are) based on trending/momentum indicators to minimize subjective biases for trend identification purposes. Blue candles represent a Bullish phase. Red candles represent a Bearish phase. Grey candles serve as Consolidation phases (within a Bullish or a Bearish phase), but sometimes they tend to form at the end of a trend. Note: Candle colors are not predictive – they merely state what the current trend is. Indeed, the candle color can change in the next bar. False patterns can occur around the 200-period moving average, or around a support/resistance and/or in sideways/choppy market. The author does not guarantee the accuracy of the information. Past performance is not indicative of future performance. Users of the information do so at their own risk.
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— Written by Manish Jaradi, Strategist for DailyFX.com
— Contact and follow Jaradi on Twitter: @JaradiManish