Are the bears taking back control?

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Prévisions Dow Jones, S&P 500, Nasdaq 100:

  • Stocks came under selling pressure after a series of strong trends developed throughout the summer.
  • The high-flying Nasdaq posted a sharp pullback, with lower selling seen in the Dow and S&P 500.
  • At this point we’ve had a few days of selling and it’s not creating a new trend yet, especially with how these uptrends have become integrated. But that doesn’t mean things can’t continue to change as there are a number of risk factors to consider and an 88% gain from an index in less than six months doesn’t seem like a theme. sustainable.
  • The analysis in this article makes heavy use of price action and chart templates. To learn more about price action, see our DailyFX Education section, where it is taught among a host of others candlestick patterns and training.

Sale of shares after smooth sailing throughout the summer

It was a sharp change of pace in the middle of this week as a host of new stock traders learned a tough lesson: stocks don’t always go up. While this summer’s uptrend has been largely smooth and fairly sharp as prices climbed higher, the September open was a stark reminder of that fact with a pretty aggressive sell-off on Thursday. That sell-off happened overnight as global markets took that punch in stocks, which led to Friday’s NFP report, which didn’t sound so bad. But – that selling pressure stayed through the opening of US stocks before buyers finally showed up, helping rally US stocks at the weekly close.

This leaves a very important question for market participants: what’s the next trend?

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The passage of the March lows was strange in many ways. The Nasdaq is up 88% from March lows, less than six months! The S&P 500 is up nearly 66% while the Dow Jones posted the weakest performance among the three major US stock indices, producing a measly 60% over the same period.

To be sure – there is a very reasonable explanation for Why the uptrend has developed: what is more difficult to justify is the size of the movement given the variables of the fundamental context. With rates quickly falling to near zero in March, there was a simple dearth of investment options for fund managers, so naturally stocks got at least some of that attention when the stimulus measures. and market support were announced. And as the buyers returned, more returned to the table until we finally got back to our starting point on the Nasdaq 100 and soon after, the S&P 500.

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S&P 500 returns to support at Prior ATH

The 3,400 level appears to be a big one in the S&P 500. This was the area around which price action peaked in February. And when the S&P fell below 2,180 a month later, it was hard to imagine how 3,400 could so quickly come back into the equation – but it did in early August and led to around nine days of consolidation in this uptrend. Buyers eventually placed another breakout on the upper side but, until this week, prices had not tested support around this earlier resistance area.

S&P 500 Daily Price Chart

Graphic prepared by James Stanley; SPX500 on Tradingview

Take a short-term look at the matter, and there is still a possibility of downward pressure next week. The zone of concentration appears to be around 3485 which is an earlier low spin resistance which at this point is the most recent “low”. If those sticks lower and the buyers don’t test above, then that bearish context opens up a bit more, focusing on support potential around the 3385-3400 area, after which 3350 kicks in. Au Beyond that, the next major waypoint appears around 3255, which is the 23.6% Fibonacci retracement of the post-March major move.

S&P 500 Four-Hour Price Chart

Graphic prepared by James Stanley; SPX500 on Tradingview

Nasdaq 100: the High-Flyer goes up a notch

It is increasingly difficult to justify the current valuations of technology stocks in the United States. While the ‘b’ word has been spoken from several corners of the inter-canvases, the point is that we can’t call something a bubble until it has already burst… until then, its simple. guesswork (where the logical problem lies with “spotting bubbles” in the first place).

But, there isn’t much on this Earth that gains 88% in value in less than six months without some type of outlier quality. The fact that this has happened with 100 of the world’s biggest tech stocks is mind boggling and hints at the fact that there are other variables at play here.

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This week highlights the challenge with the Nasdaq 100: While the S&P 500 regained 6.68% from Thursday to Friday, the Nasdaq 100 returned more than 10%. Similar to how the gains were magnified on the upside, the losses were magnified on the downside, which makes the situation worse to some extent, because if we are at a major inflection point where stock prices start to turn with the aggression, the Nasdaq would likely lead to considerable pain.

But – at the moment we only have a few days of sales and it doesn’t mark a trend yet. For the next week – the importance level at the top of the price action appears to be around 11,850. This was a supportive resistance area and it is currently functioning as the most recent low. A hold of this high keeps the door open for short trades, focusing on a return to the 11,100 area on the chart as a breach reopens the door for bullish momentum strategies.

Nasdaq 100 Four Hour Price Chart

Graphic prepared by James Stanley; Nasdaq 100 on Tradingview

Dow Jones: the latecomer could soon have his time in the sun

While the Dow Jones has yet to set a new all-time high after the coronavirus entered the equation, that lagging performance was actually an advantage this week, as the pullback from Thursday to Friday saw a bit more than 5% recovered. Another advantage is the structure of the charts, as there are a number of areas nearby that can be used for strategy purposes in the index and scenarios such as the new highs of the S&P 500 and Nasdaq 100 do. not allow a similar opportunity.

In the Dow, the large area of ​​interest appears to plot from around 27159-27528, which is a confluence area made up of two Fibonacci levels. Perhaps more importantly, this area has recent elements of interest, as this area helped produce a short-term high (which held for two months) in early June, followed by a rapid surge of support for the end of August.

A move towards this area with a show of support could open the door to some bullish pursuit scenarios.

Dow Jones Daily Price Chart

Graphic prepared by James Stanley; Nasdaq 100 on Tradingview

– Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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