Macro: Sandcastle economics
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S&P 500 and Nasdaq 100: Correction appears done
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Summary: The US equity market rebounded strongly from its sell-off in December and most indices have returned to where they were before the fall. A technical analysis of the charts has a lot to say about where things may go from here.
The strong rebound has occurred with few and minor corrections, leading the S&P 500 to form what looks like a wedge pattern. Yesterday, the index got rejected at the 2,816 resistance. It is an unusual wedge in the sense that the breakout of wedges usually occurs 2/3 of the way to the apex (where the two lines meet). Here we are almost at the end.
Regardless of this, the lower rising trendline is very clear it is likely to be broken to the downside today. This fits nicely in line with my post about the Nasdaq 100 last week where I predicted markets would top out Friday or Monday .
A bearish breakout should take the Index down to around 2,635 which is both the 0.382 retracement and the January correction. Some support at around 2,700.
The last time we saw MACD at its current levels was just after the all-time high in October.There are minor divergences on RSI and volume has been falling slightly during the entire January/February rally.
Equities are ripe for a correction. However, a close above 2,816 will most likely extend the uptrend.
Regardless of this, the lower rising trendline is very clear it is likely to be broken to the downside today. This fits nicely in line with my post about the Nasdaq 100 last week where I predicted markets would top out Friday or Monday .
A bearish breakout should take the Index down to around 2,635 which is both the 0.382 retracement and the January correction. Some support at around 2,700.
The last time we saw MACD at its current levels was just after the all-time high in October.There are minor divergences on RSI and volume has been falling slightly during the entire January/February rally.
Equities are ripe for a correction. However, a close above 2,816 will most likely extend the uptrend.
Nasdaq 100
An almost identical picture: as mentioned last week as a possible scenario, the Nasdaq 100 broke its lower rising trendline almost sideways, trying to get back above. However, it looks like it failed at the closing and ended yesterday just on the resistance at 7,107.
Resistance at 7,206 is the important level the Index has to break to continue its momentum. Volume has been falling more or less throughout February, which is a sign of weakness in the uptrend.
A bearish correction could take the Nasdaq down to around 6,600.
An almost identical picture: as mentioned last week as a possible scenario, the Nasdaq 100 broke its lower rising trendline almost sideways, trying to get back above. However, it looks like it failed at the closing and ended yesterday just on the resistance at 7,107.
Resistance at 7,206 is the important level the Index has to break to continue its momentum. Volume has been falling more or less throughout February, which is a sign of weakness in the uptrend.
A bearish correction could take the Nasdaq down to around 6,600.
The S&P 500 seems it is being rejected at the 0.786 Fibonacci retracement at around 2,813, which is also around the level shown on the daily chart where the index was rejected a couple of times in November and December just prior to the massive sell -ff mid-December.
RSI haven’t broken above the 60 threshold, meaning it's still in bearish sentiment. Volume was rising during the December sell-off and has been flat at best during the rebound here in 2019.
If we do not see a pick up in volume (last week weekly volume was the lowest since summer 2018!) and RSI stays below 60 and even starts to drop lower, the bearish trend could resume.
RSI haven’t broken above the 60 threshold, meaning it's still in bearish sentiment. Volume was rising during the December sell-off and has been flat at best during the rebound here in 2019.
If we do not see a pick up in volume (last week weekly volume was the lowest since summer 2018!) and RSI stays below 60 and even starts to drop lower, the bearish trend could resume.
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