Technical Analyst, Saxo Bank
Summary: All major US Equity Indices have confirmed down trends on short, medium and longer term. The start to 2022 is worse than both 2008 and 2009 (the so-called Financial Crisis) and there is not much comfort in the charts and indicators. May going in to June can become a major challenge for the markets. Comparing the past few years Bull market to markets in 1990's draw similarities that should worry investors
S&P 500 closed Friday below key support at 4,164 confirming down trend that could be accelerated. Short term a daily close above 4,309 will putt the outlook on neutral but medium term would still look bearish. RSI below 40 supporting negative sentiment outlook.
Medium term bear trend scenario is unfolding. S&P 500 closed last week at the lowest weekly closing level in a year.
Weekly RSI is back below 40 and moving in a falling channel
There is no support before around 3,815 which is also the 0.382 Fibonacci retracement of the post Corona scare sell-of bull market.
Close to the 3,815 level the 1.618 Projection of the March-April bullish correction is at 3,791.
A price level that is not unlikely to be reached before summer. Sell in May and GO away could hit hard this year.
However, looking a bit further ahead, there is further down side risk to the consolidation area 3,500-3,200 after a possible summer correction.
From the Monthly chart I will refer to our Q2 Outlook https://www.home.saxo/insights/news-and-research/thought-leadership/quarterly-outlook page 28-29, published about a month ago. Here I analyse Dow Jones Industrial Average Index.
Summary; “Going back 40+ years the stock market has experienced periods of longer-running bull markets followed by almost as many larger corrections and even a couple of market crashes.
Examining these historic uptrends and corrections a bit closer we can see that in the build-up to every single larger correction there have been warning signs in the form of divergence in the market. Divergence is an indication of an imbalance and can been read from technical indicators such as RSI, MACD and volume. If price is rising under falling traded volume it is a sign of weakness.
Similarly, it is a sign of a weakening trend if prices keep rising but the RSI is falling; that is exactly what we have seen in the run-up to market peaks and corrections”. And exactly what we have seen the past couple of years; massive divergence i.e. imbalance in the markets, that now seem to commence its "trading out" scenario. A scenario that can lead to much lower levels over the next months
The picture is identical on S&P 500, Dow Jones and Nasdaq.
The Equity markets have clear Bubble picture. If we compare the past couple of decades with one of the most famous ones, the Tech/.com from the 1990’s there are clear similarities, and if history is any guide and repeat itself, which it often do in Financial markets especially when we are talking about bubbles, the price level will always come down to at least the around the peak of the so-called Pre-peak area. For S&P500 that could equate to around 3,400.
If that scenario unfolds it doesn’t happen overnight, of course, or in next few weeks but can unfold over the next 6-18 months.
Nasdaq 100 closed below key support at 13K. Down trend confirmed. Next support is at around 12,208 and 11,152.
Dow Jones Industrial is in a short term down trend. Key support at 32,632 is not broken however, but it is most likely a question of a couple of days.
RSI is below 40 threshold showing negative sentiment indicating lower levels are likely. No strong support before around 29,881-29,625.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.