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S&P 500, Nasdaq: Bears are back -by Ecork

S&P 500 and Nasdaq 100 Talking Points:

  • US stocks remained in rectangle formation Until about an hour before the US close yesterday. Since then, it has been a very bearish background.
  • This morning brought another boost on inflation, and after last month’s moderation fell to 8.3%, this month saw another jump to a 40-year high.
  • The analysis in the article is based on price movement And the chart formations. To learn more about price action or chart patterns, check out DailyFX Education Section.

Another worrying data point was for inflation

Last month brought some hope as overall inflation recorded 8.3%. While that’s not a huge number given the Fed’s 2% target, it was just a little lower than the 8.5% that printed the previous month and, frankly, was one of the few items the bulls could absorb. Inflation has continued to rise since August of last year, and last month came in slightly lower than the previous month giving hope that inflation may have peaked.

Those hopes were dashed this morning as headline inflation hit a new 40-year high at 8.6%. The graph below shows the growth in the Core CPI since the beginning of last year, and below this graph is a red line where the Fed says it wants inflation to be.

US CPI since January 2021

The graph was prepared by James Stanley

As you can imagine, this disappointment hasn’t been taken well by the markets yet. The immediate response was painful, as Treasury yields jumped as stocks tumbled, and the US dollar rose again after yesterday’s breakout of the ascending triangle pattern.

Next week brings Federal Open Market Committee The bank is widely expected to rise by 50 basis points. It is widely expected that there will be little panic over anything else, so the focus will likely be on the bank’s expectations regarding how tight they will be at future meetings. It seems, at this point, that through July is fairly certain for another 50 basis points, so the big question is what the Fed will do for September.

After the release of the CPI this morning, the odds of a further 50 basis point rise in September have boosted to reasonable levels, so it appears that markets are expecting another half point increase at this rate decision.

U.S. dollar

you have looked at The dollar in technical forecasts for this week, while maintaining the currency’s bullish bias after last week is starting to show some evidence of a bottom. This support appeared in a major area I was following and the first part was presented this week ascending triangle formation This was before the European Central Bank’s interest rate decision.

I searched the US dollar yesterday morningRight after the European Central Bank meeting but before the breakout started to appear. With EUR/USD seeing more pain after the European Central Bank statement and CPI release this morning, there may be more in store here and this swing high at psychological level 105.00 is weak on DXY as we move into next week.

Four hour US dollar price chart

Usd four hour chart

The graph was prepared by James Stanley; US dollar, DXY on Tradingview

EUR / USD

After the European Central Bank took a docile approach to its interest rate decision yesterday, the bottom of the single currency fell. As inflation is still brisk in the US and the Fed has had to respond, the divergence between the two economies has only continued to grow and this is evident in the EUR/USD pair.

As it seemed yesterday, EUR/USD was already testing a major support area. But, the market hit a new low and there was a possibility of a continued decline. This support has since been broken and prices are heading down to the next mark on the chart, which is plotted at the 1.0500 psychological level.

Four hour chart of the EUR/USD pair

Euro vs US dollar four hour chart

The graph was prepared by James Stanley; EURUSD on Tradingview

swipe stock

However, the most notable movement at the moment is seen in stocks.

The stock has had an approximate 2022 so far. But, within two weeks, prices have pulled back with prices rising from key support areas in both the S&P 500 and Nasdaq. But, as I wrote earlier this week, those bounces looked weak as the bearish bias seemed to hold, even with the two-week spurt of hope.

Sellers started hitting stocks late in yesterday’s session, with about an hour remaining, and that slide continued through the early part of Friday’s trading.

In the S&P 500, the fund was broken and prices are pushing down towards a major support area. This area is around 3800-3830 which is the area that hit lows last month. It’s also around the area that is a 20% bear market area.

This area to trade in is a major bargain and will point to new 15-month lows on the S&P 500. However, there may be a more bearish scenario that I will look at after the next chart.

S&P 500 daily price chart

SPX500 daily chart

The graph was prepared by James Stanley; S&P 500 on TradingView

Nasdaq 100

The NASDAQ 100 is more bearish than the S&P 500 and given the driving forces, this makes sense. Going forward, if we see the big downtrend on its way back, the tech-heavy index may still be a more attractive place for the bears.

I looked at this on Wednesday, by comparing the recent movements of the two indices. The S&P 500 found support at the 38.2% retracement of the pandemic move, and resistance at the 23.6% retracement. Shown below is the weekly chart.

S&P 500 weekly chart

SPX Weekly Chart

The graph was prepared by James Stanley; S&P 500 on TradingView

To make an apples-to-apples comparison, the Nasdaq 100 slipped all the way to 50% of the same major move, extending from its March 2020 low to its recent high. While the S&P 500 rebounded resistance at the 23.6% retracement, the Nasdaq rebounded resistance at the 38.2% retracement.

With these similar Fibonacci retracements, we can see a further development of the bearish theme in the NASDAQ 100 as the easy money policies that built this movement start to exit the market.

Nasdaq 100 weekly price chart

Nasdaq 100 weekly chart

The graph was prepared by James Stanley; Nasdaq 100 on TradingView

Even on a short-term basis, the Nasdaq 100 has more bearish appeal as prices have already started to fall back to the next support area.

Given that this is a Friday and we have already seen a strong move in the last 18 hours, it could be difficult to follow. But, the focus remains very high for the coming week as the FOMC goes through what is likely to be one of the most interesting FOMC rate decisions in recent memory.

Nasdaq 100 daily price chart

Nasdaq 100 . chart

The graph was prepared by James Stanley; Nasdaq 100 on TradingView

— By James Stanley, Chief Strategist for DailyFX.com

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