S&P 500, Nasdaq 100 and Dow Jones Forecasts for the Week Ahead

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S&P 500, Nasdaq 100 Technical Forecast: Bearish

  • Stocks continued to point out indicators of battle this week.
  • Higher charges are on the horizon that and that’s definitely had impression on equities however the query stays as to how shortly and aggressively the Fed may start to push for tighter coverage. Markets are actually pricing within the first FOMC price hike because the pandemic started in March.
  • Next week the Fed strikes right into a blackout interval forward of the January price determination, which suggests no Fed-speak. And it’s additionally an choice expiration week, and as our personal Justin McQueen identified on Friday, this had a reasonably detrimental impression on the S&P 500 final yr.

Sentiment continues to shift within the US fairness market as traders are gear up for a more-hawkish Federal Reserve. This week produced extra indicators that the FOMC is making ready to take away much more lodging and markets are actually anticipating the financial institution to pose that first price hike since 2018 in March of this yr.

But, maybe extra importantly, the expectation can also be rising for extra hikes later within the yr. While the Fed highlighted the opportunity of 2-3 hikes at their December assembly, markets are actually pricing in a median of 4 hikes this yr, together with a 30% likelihood of at the very least 5 price hikes. And whereas little stays sure round what impression these hikes may carry, market individuals don’t seem prepared to only wait round to see as shares have began to point out higher bearish strain, as was witnessed within the first week of the yr.

S&P 500

The S&P 500 opened this week with weak spot, pushing all the way in which right down to a help trendline earlier than bouncing larger. That led to a bounce on Tuesday, helped alongside by some not-overly-hawkish feedback from FOMC Chair Jerome Powell in entrance of Congress. But then Wednesday introduced a 7% CPI learn that began to excite charges markets once more, and the whole thing of these good points from Tuesday and Wednesday have been taken-out on Thursday.

Another disappointing piece of knowledge confirmed on Friday with retail gross sales reflecting a -1.9% contraction, serving to to offer bears one other gust behind the sails as costs reverted again in the direction of that longer-running trendline.

Technical Forecast for the S&P 500: Neutral

While there’s a case to be made for bearish situations, that argument seems much more engaging within the Nasdaq 100, which is extra rate-sensitive and given present themes, tech might be very susceptible ought to a deeper retracement take maintain.

In the S&P 500, the 4490-4500 spot on the chart seems particularly key for consumers to carry earlier than a deeper fall could present: A breach of 4490 opens the door for bearish methods, and the subsequent important spot of help isn’t till across the 4200 space comes into the image.

S&P 500 Daily Price Chart

Chart ready by James Stanley; S&P 500 on Tradingview

Nasdaq 100 Tips Below Channel Support

From an apples-to-apples comparability, the ache factors have been a bit higher on the Nasdaq 100. A similarly-placed trendline, drawn from the November 2020 lows and holding help all through 2021, might be seen on the tech-heavy index. And whereas the S&P 500 continues to bounce on its model of that very same trendline, the Nasdaq 100 has already begun violation, beginning on Monday.

Bulls got here in and bid the index again as much as the 16k deal with however that zone of resistance remained agency, and sellers got here again into the image on Thursday and continued to push via Friday morning commerce.

At this level, help is holding on the 14.4% Fibonacci retracement of the pandemic run, taking the low from March of 2020 as much as the November swing-high.

But, as shared proper after the New Year opened for commerce, there’s been a constructing divergence between the Nasdaq 100 and S&P 500. A sequence of lower-highs within the Nasdaq from November to December runs counter to the higher-highs printed within the S&P 500.

This additional highlights the Nasdaq 100 as a viable car for bearish situations in US equities. The forecast shall be set to bearish for the week forward.

Nasdaq 100 Technical Forecast: Bearish

Nasdaq 100 Daily Price Chart:

S&P 500, Nasdaq 100 and Dow Jones Forecasts for the Week Ahead

Chart ready by James Stanley; Nasdaq 100 on Tradingview

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and observe James on Twitter: @JStanleyFX

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