S&P 500, Nasdaq, Dow Jones Breakout on Soft PPI, Resistance Overhead


Indices Talking Points:

  • The S&P 500 tested a resistance zone yesterday and held, but buyers have pushed through that resistance after the release of a lower-than-expected PPI report.
  • Markets seemed to ignore the higher-than-expected inflation expectation report yesterday, but are intently-focused on this morning’s lower-than-expected PPI report, which doesn’t always generate such a response. This highlights sentiment, with short-term strength remaining in focus as longer-term resistance sits overhead in the Dow, S&P and Nasdaq.
  • The Dow put in an ugly daily bar yesterday but as yet, sellers haven’t been able to evoke much of a pullback there yet. But, the shift towards greater strength in the Nasdaq is notable, as discussed in this week’s technical forecast.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

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Last week was a big showing for US stocks with the Dow breaching a long-term trendline as both the S&P 500 and Nasdaq broke above falling wedge formations. Falling wedges are tracked with the aim of bullish reversals and the fact that price broke out from those formations last week keeps the focus on short-term strength with a very large question mark on long-term trajectory.

Similar to the rally that sparked in mid-June, prices pushed off of oversold conditions and have continued to push back towards longer-term resistance. In June, the S&P 500 ran until the 200 day moving average came into play, and that high showed right at a trendline projection taken from January and March swing highs. That kept the door open for bears and after the trendline inflection in mid-August, prices hurriedly dropped by more than 19% until finally carving out another spot of support just above 3500 in mid-October.

The bounce move is now a month old in the S&P 500 and that prior run in June lasted for a little more than two months. And at this point, the index hasn’t really encountered that long-term resistance yet, although it sits just overhead, starting around the 4100 level on the chart.

After holding resistance at a Fibonacci level yesterday, the S&P 500 is now breaking out from short-term resistance and making a fast approach towards that confluent zone of resistance sitting overhead. At around 4078 is the 200 day moving average, which caught the high back in August. At 4099, there’s a longer-term Fibonacci level and just above that, the bearish trendline that’s so far held the highs through 2022 trade.

S&P 500 Daily Price Chart

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

Nasdaq Kicks into Gear

Since the lows in mid-October, the Dow has led the way. That’s somewhat peculiar for fresh trends as the Dow is often the laggard when growth expectations begin to get priced back into stocks, with the tech-heavy Nasdaq usually showing some form of leadership.

And if it is a short squeeze scenario, similarly, the Nasdaq is usually he most beaten down and thusly has greater potential as shorts quickly cover. But, that didn’t really happen last month. And to that point, while both the S&P and Nasdaq set their yearly lows on October 13th, that was a higher-low for the Dow, indicating that there may have been some actual accumulation taking place as bulls defended the prior October low.

Last week is when that began to shift, specifically after the CPI report on Thursday. That’s when we saw a massive response in the Nasdaq as the tech-heavy index tried to play catch up. In my view, this indicated short-squeeze as bears threw in the towel following the bullish breakout from the Nasdaq’s falling wedge. And, as I wrote in this week’s tech forecast, that put the focus on short-term strength in the midst of longer-term bearish potential.

The Nasdaq similarly held resistance at Friday’s high yesterday, with support showing right at a key Fibonacci level plotted at 11,700; but the response to PPI data this morning has sent the index up to its next level of resistance, plotted around the 12k psychological level. For bears, that 11,700 level remains key, and a push below that can open the door for a deeper pullback.

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Nasdaq 100 Daily Chart

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Chart prepared by James Stanley; Nasdaq 100 on Tradingview

Dow Jones

Interestingly, despite leading US indices on the way up in late-October, the Dow lagged a bit in the late-week run after CPI was released. Friday was actually a red day in Dow futures, albeit slightly, as a doji developed even as the S&P and Nasdaq both rallied.

Yesterday saw the Friday high respected and price even formed an inverted hammer on the daily chart, giving further indication of possible resistance potential. And given how fast and extended the run came in, that resistance could possibly have turned into a top.

But this morning prices have pushed right back up to that level after the release of PPI data, and this exposes a zone of resistance overhead that may be of interest to those looking to fade this move in equities. Current resistance is holding around the 34,000 level which has held the highs on both Friday and Monday. There’s another zone just overhead, and that plots around the prior high from August, plotted around the 34,250 level.

For support, the spot around 33,444 seems notable as this was a swing-high that helped to set the Friday low. If sellers can breach below this today, that will further give the appearance of resistance working its way through price action, and that opens the door for a deeper push down to the 33,000-33,100 zone.

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Dow Jones Daily Price Chart

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Chart prepared by James Stanley; Dow Jones on Tradingview

— Written by James Stanley, Senior Strategist, DailyFX.com & Head of DailyFX Education

Contact and follow James on Twitter: @JStanleyFX





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