S&P 500, Nasdaq and Dow Jones Technical Forecast for the Week Ahead

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S&P 500, NASDAQ AND DOW JONES INDEX KEY POINTS:

US INDICES TECHNICAL FORECAST: BEARISH

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US INDICES WEEK IN REVIEW:

US Indices have had an interesting week with Federal Reserve Policymakers dominating the headlines. In what was a quiet week in terms of data we had Fed chair Powell speaking first at the Economic club in Washington DC. US indices recovered Monday losses as Chair Powell was seen as not being hawkish enough which gave risk assets a boost. This was however short lived as Wednesday brought a host of Fed policymakers who doubled down on hawkish rhetoric giving risk assets some food for thought. This was noticeable in the constant changes in the Fed Funds peak rate which seems to be driving market moves at present. Further emphasizing this was Friday’s University of Michigan data which saw inflation expectations upgraded to 4.2% from 3.9%, backing up the Fed policymaker’s hawkish rhetoric. As a colleague put it, it’s been a case of 2 steps forward 1 step back at present with little to no certainty on where the Fed Funds peak rate will end up.

Looking to the week ahead, it promises to be an interesting one with US inflation, retail sales and industrial production data releases. Will these high impact data releases provide more clarity for US indices?

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S&P 500 TECHNICAL OUTLOOK

S&P 500 Weekly Chart

Source: TradingView, prepared by Zain Vawda

The S and P 500 on the weekly chart broke the yearlong descending trendline 3 weeks ago and looked like blastoff was incoming. We did push higher in the two weeks since, coming within a whisker of the 100-day MA and key resistance level around 4200 before retreating toward that psychological 4000 mark. The weekly candle here is on course for an a bearish inside bar close which hints at further downside ahead.

S&P 500 4H Chart

Source: TradingView, prepared by Zain Vawda

The S and P 500 on the 4H timeframe had been showing some indecision earlier in the week with price action printing lower highs and higher lows within the triangle pattern which was in play. Thursday however saw us break out of the triangle pattern and print a new low before touching the 100-day MA. Having printed a fresh low and supported by the 100-day MA we could be in for some retracement to start the new week with a retest of the February 8 swing low at 4111 a possibility before the next leg to the downside.

NASDAQ TECHNICAL OUTLOOK

Nasdaq Weekly Chart

Source: TradingView, prepared by Zain Vawda

Looking at the Nasdaq weekly chart we can see the double top pattern which had formed around the 12880 mark which hints at a bigger move to the downside. The weekly candle looks set to close as a shooting star as well as an inside bar which adds further credence to the idea that we are likely to see a further push to the downside in the week ahead.

Nasdaq Daily Chart

Source: TradingView, prepared by Zain Vawda

The daily timeframe gives us a clearer view of the ascending trendline which is in play. A break of the ascending trendline will likely see the 200-day MA tested, resting around the 11900 area which could provide support with a break and candle close below needed to see further downside. Alternatively, any attempted push higher from these levels is possible given the high impact data expected, however I do not see price being able to take out the yearly high around the 12900 area.

DOW JONES INDEX TECHNICAL OUTLOOK

Dow Jones Index Daily Chart

Source: TradingView, prepared by Zain Vawda

Unlike its fellow US indices, the Dow Jones is on course for a second week of losses while the daily candle looks set to close as either a doji or hammer, hinting at the potential for a reversal. In terms of price action, we had been making a series of higher lows and higher highs since the January 20 swing low off the 33000-support handle. Yesterday’s daily candle close saw us break the mold and print a lower low which means we could be in for some retracement to start the new week for a new lower high to be made. We also have the triangle pattern in play with a downside breakout bringing the 100-day MA at 33350 and potentially support at 33000 into play.

Alternatively, and upside break of the triangle pattern could see the psychological 35000 level come into play with near term resistance provided by the previous swing highs around 34300 and 34550 respectively.

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— Written by Zain Vawda for DailyFX.com

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