S&P 500, Nasdaq 100, and Dow Jones Talking Points:
- It’s been almost the first half of the second quarter for stocks and the faltering trade isn’t over yet. The most bullish factor for stocks at the moment is how much everything has gone down.
- The Fed has been clear that its primary objective is to tackle inflation and that it remains high. We’ll get the next boost at this data point tomorrow with the release of the CPI for April, forecast at 8.1% versus 8.5% from March.
- Stocks are bouncing today after all Dow, S&P and Nasdaq indices tested through key support levels yesterday. This looks like a bear market bounce refocusing back on resistance in an attempt to find lower tops for bearish continuation scenarios.
- The analysis in the article is based on price movement And chart formations. To learn more about price action or chart patterns, check out DailyFX Education Section.
It’s been a rough start to the second quarter for stocks, but that theme is starting to come up more prominently at the start of the year. The big change that has occurred recently appears to be the market acceptance that the Fed will, in fact, give preference to its battle with inflation over stock market gains. It may not have seemed that way, especially after the Federal Open Market Committee’s interest rate decision last week.
The Federal Reserve rose 50 basis points for the first time in 22, but stocks rose later in that session as Jerome Powell apparently closed the door to the prospect of a 75 basis point lift in June. But that doesn’t mean the Fed won’t continue trying to rein in inflation, and a slower approach may actually lead to more bearish behavior as capitulation looks a long way off. More rallies in advance could mean a chaotic market in the short term. But, it may also give the bank a better chance of actually lowering inflation so that it can get away from this tightening stance sooner rather than later.
Obviously that didn’t happen and when the Fed erred on the side of caution last week, a big spike in short-covering developed on Fed Day Which completely vanished the next day.
Since then – we’ve had a weakness mostly. Friday’s session was just as painful for stocks as it was yesterday. But as we opened on Tuesday, little hope emerged as stocks posted an overnight bounce from fresh yearly lows.
The big question – can it hold or not This is just another bear market bounce used by sellers To create short positions at more favorable points on the chart.
Standard & Poor’s 500
Yesterday the S&P 500 crossed the 4k level psychological level For the first time since March 2021. This level provided some support in the middle of yesterday’s US trading session, but even that came under fire from sellers before the close. The level then emerged as resistance in early Asian trade before finally starting support around 3,961.
At this point, it looks like we have a bear market rally on our hands after stocks went back into an oversold state yesterday, and this would be somewhat similar to the situation we saw before the Fed rate decision, when the market was so short that even a hint of The positive news prompted sellers to head for exits. This leads to a quick move higher which then puts pressure on other shorts and eventually we have a short term rally on our hands.
From the short-term charts, we can see the continuation of higher highs and higher lows in the S&P 500. The big question here is where the bears are reversing. Last week – the resistance was played at the same resistance 4304 that was in -play before the revised decision. There are plenty of previous swing lows to use for potential high-low resistance, with one near at 4065 followed by another at 4100. After that, 4147 comes into play and is followed by another large area extending from 4186-4211.
S&P 500 30-minute chart
The graph was prepared by James Stanley; Standard & Poor’s 500 on Tradingview
You’ve been more down on the NASDAQ from the S&P 500 and that is still the case today. Tech-heavy indicator remains weak in a price-rising environment. We are in the early stages of a tightening cycle, and the index is already in “bear market territory”, having fallen more than 20% from its previous high in November.
There has been a sharp decline recently as well, taking from the previous five weeks of losses after the Nasdaq hit resistance at 15,300 again in late March. This second hit is made to form a double top – keeping the door open for more losses.
Yesterday saw the NASDAQ test by another major support point taken from the 12207-12465 area. The overnight bounce here brought the price to the resistance level at the previous support, plotted from 12519.
At this point, the big question is how aggressive sellers remain. Likewise, the prices have taken a rapid movement that is arguably already oversold, which means that the counter-trend movement may have more room to run. But, this must be combined with reality – buyers have short-term support above either 12409 or 12294; Preferably the first versus the last. That could keep the door open for a move up to resistance at 12629 or 12710. If any of these points can’t sustain the highs, the former support zone will appear at 12,895-13,050. That was a really important area last week, so a return of resistance cannot be ruled out and this could allow the bearish bias to continue in the longer term.
Nasdaq 100 30 minute price chart
The graph was prepared by James Stanley; Nasdaq 100 on Tradingview
Dow Jones Expansion Model, Bounce From 32K
As for the approach of bearish US stocks, I still believe that the S&P 500 and Nasdaq 100 have more attractive potential in the near term. However, the Dow Jones has similar bearish tendencies and that could equate to a big move at some point, as evidenced by the expanding pattern that continues to appear on the weekly chart.
Dow jones weekly price chart
The graph was prepared by James Stanley; Dow Jones on Tradingview
On a short-term basis, the daily chart is still significant and has already had a quick start to the indicator’s day – which could equate to a bullish engulfing by the time all is said and done. If that happens, the pullback from the support could last a bit longer. But more important than today’s movement is how the Dow Jones responds to its resistance levels: one spot is near at 32746 and above, another point at 33.031. If the decline can continue for a while, then the next major resistance spot is at the level of 34.025.
Dow jones daily price chart
The graph was prepared by James Stanley; Dow Jones on TradingView
— written by James StanleyAnd Senior strategist for DailyFX.com
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