S&P 500, Nasdaq 100 Technical Forecast: Bearish
- Shares continued to point out indicators of battle this week.
- Increased charges are on the horizon that and that’s actually had affect on equities however the query stays as to how shortly and aggressively the Fed would possibly start to push for tighter coverage. Markets at the moment are pricing within the first FOMC price hike for the reason that pandemic started in March.
- Subsequent week the Fed strikes right into a blackout interval forward of the January price choice, which implies no Fed-speak. And it’s additionally an possibility expiration week, and as our personal Justin McQueen identified on Friday, this had a reasonably unfavorable affect on the S&P 500 final yr.
Sentiment continues to shift within the US fairness market as traders are gear up for a more-hawkish Federal Reserve. This week produced extra indicators that the FOMC is getting ready to take away much more lodging and markets at the moment are anticipating the financial institution to pose that first price hike since 2018 in March of this yr.
However, maybe extra importantly, the expectation can also be rising for extra hikes later within the yr. Whereas the Fed highlighted the potential for 2-3 hikes at their December assembly, markets at the moment are pricing in a median of 4 hikes this yr, together with a 30% likelihood of at the least 5 price hikes. And whereas little stays sure round what affect these hikes would possibly deliver, market individuals don’t seem prepared to simply wait round to see as shares have began to point out better bearish stress, as was witnessed within the first week of the yr.
The S&P 500 opened this week with weak point, pushing all the best way all the way down to a assist trendline earlier than bouncing larger. That led to a bounce on Tuesday, helped alongside by some not-overly-hawkish feedback from FOMC Chair Jerome Powell in entrance of Congress. However then Wednesday introduced a 7% CPI learn that began to excite charges markets once more, and the whole lot of these positive aspects from Tuesday and Wednesday had been taken-out on Thursday.
One other disappointing piece of knowledge confirmed on Friday with retail gross sales reflecting a -1.9% contraction, serving to to provide bears one other gust behind the sails as costs reverted again in the direction of that longer-running trendline.
Technical Forecast for the S&P 500: Impartial
Whereas there’s a case to be made for bearish situations, that argument seems much more engaging within the Nasdaq 100, which is extra rate-sensitive and given present themes, tech may very well be very weak ought to a deeper retracement take maintain.
Within the S&P 500, the 4490-4500 spot on the chart seems particularly key for consumers to carry earlier than a deeper fall could present: A breach of 4490 opens the door for bearish methods, and the following vital spot of assist isn’t till across the 4200 space comes into the image.
S&P 500 Every day Value Chart
Chart ready by James Stanley; S&P 500 on Tradingview
Nasdaq 100 Ideas Under Channel Assist
From an apples-to-apples comparability, the ache factors have been a bit better on the Nasdaq 100. A similarly-placed trendline, drawn from the November 2020 lows and holding assist all through 2021, might be seen on the tech-heavy index. And whereas the S&P 500 continues to bop on its model of that very same trendline, the Nasdaq 100 has already begun violation, beginning on Monday.
Bulls got here in and bid the index again as much as the 16k deal with however that zone of resistance remained agency, and sellers got here again into the image on Thursday and continued to push by means of Friday morning commerce.
At this level, assist is holding on the 14.4% Fibonacci retracement of the pandemic run, taking the low from March of 2020 as much as the November swing-high.
However, as shared proper after the New Yr opened for commerce, there’s been a constructing divergence between the Nasdaq 100 and S&P 500. A collection of lower-highs within the Nasdaq from November to December runs counter to the higher-highs printed within the S&P 500.
This additional highlights the Nasdaq 100 as a viable car for bearish situations in US equities. The forecast will likely be set to bearish for the week forward.
Nasdaq 100 Technical Forecast: Bearish
Nasdaq 100 Every day Value Chart:
Chart ready by James Stanley; Nasdaq 100 on Tradingview
— Written by James Stanley, Senior Strategist for DailyFX.com
Contact and observe James on Twitter: @JStanleyFX