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Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
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Head of Fixed Income Strategy
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Technical Update - S&P 500, Nasdaq and Dow Jones could drop 3-5% in coming days
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Summary: All three major Stock Indices; S&P 500 (US500), Dow Jones (US30) and Nasdaq 100 (USNAS100) are all now in confirmed down trends.
Indicators are pointing to lower support levels 3-5% lower in coming days
S&P 500 / US500 has broken below key support and Neckline in the Shoulder-Head- Shoulder like pattern at around 4,328. RSI is below the 40 threshold adding to the bearish outlook.
Note: Ideally the two Shoulders in A Shoulder-Head-Shoulder pattern (which is an indication of a top and reversal) should be almost equal height and same distance from the Head. In this case they are neither. However, that doesn’t mean S&P 500 will not act as if there is an SHS pattern which is why I have indicated it on the chart.
The two vertical arrows are indicating the potential distance S&P 500/US500 can move after is has broken below the Neckline.
If S&P 500 does travel the indicated distance there is potential down to 4,050. However, often the distance is cut short to around the 0.618 Fibonacci level at around 4,155 which is very close to the 200 Moving Average and the upper range of the Consolidation area
The 200 daily Moving Average currently just above the 0.618 Fibo level will add some support.
To demolish the SHS pattern a close above 4,540 is needed.
US500 cfd: Closed yesterday just above support at around 4,266
Expect a minor bounce but US500 is in a downtrend supported by negative RSI sentiment.
A close below 4,266 is likely leading to a sell-off down to around 4,165 support. US500 needs to close above 4,548 to reverse that. A move above 4,358 could put the downtrend on hold.
Next support at around 4,227 Nasdaq 100 closed yesterday below key support at around 14,687. RSI, which has been indicating negative sentiment since mid-August, is below the 40 threshold adding to the bearish outlook strongly indicating Nasdaq will slide lower in coming weeks.
Next support at around 14,254 but Nasdaq could be hit with heavy selling going in to October thus dropping to around 14,590.
If Nasdaq 100 is closing a week below 14,557 medium-term downtrend is confirmed indicating lower index levels going in to Q5.
To reverse the bearish trend a close above 15,513 is needed.
USNAS100 cfd closed yesterday around the key support at 14,679. Expect minor bounce before USNAS100 is likely to move lower towards support at around 14,250.
The negative sentiment on RSI is indicating USNAS100 will break the support.
Dow Jones Industrial Avg. DJI closed yesterday a few cents above its support at around 33,610.
Downtrend is confirmed supported by RSI is being below 40 threshold indicating likely lower levels.
A close blow 33,610 will pave the road to support around 32,750
If DJI is closing a week below that level downtrend is confirmed on the medium-term
To demolish and reverse this bearish trend a close above 34,978 is needed US30 cfd is testing key support at around 33,600. A close below is likely to fuel another sell-off down to around 32,750 area.
To resume bullish trend a close above 35,012 is needed.
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