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Technical Update - SP500, Nasdaq 100, Dow Jones and Russell 2000 in bearish mood. What's the downside potential?

Equities 4 minutes to read
Kim Cramer Larsson

Technical Analyst, Saxo Bank

Summary:  The three major Stock Indices S&P 500 (US500), Dow Jones (US30) and Nasdaq 100 (USNAS100) closed just a few cents above their key support levels
Short-term downtrends are confirmed however, and if the Indices are closing below key supports medium-term downtrend will also be confirmed

S&P 500 closed yesterday a few cents above key support at 4,328. RSI is back below 40 threshold adding to the bearish outlook strongly indicating S&P 500 to drop lower.

If S&P500 is closing below 4,328 on the week the medium-term downtrend has been confirmed and a sell-off down to around 4,200 is in the cards.
The 200 daily Moving Average currently around that level will add some support.
However, if medium-term bearish trend is confirmed there is downside potential to 4,100-4,050 support area.

To reverse the down trend a close above 4,512 is needed

Shoulder-HEad-Shoulder pattern? One can argue S&P 500 has formed a Shoulder-Head-Shoulder pattern. Ideally the two Shoulders should be almost equal height and same distance from the Head.
In this case they are neither. However, that doesn’t mean S&P 500 will not act as if there is an SHS pattern which is why I have indicated it on the chart.

The two vertical arrows are indicating the potential distance S&P can move after is has broken below the Neckline, which hasn’t- at least not just yet.
But if S&P 500 does travel the indicated distance there is potential down to 4,050.  However, often the distance is cut short to around the 0.618 Fibonacci level at around 4,155 which is very close to the 200 Moving Average and the upper range of the Consolidation area.

S&P500 could also be forming a Descending Triangle like pattern.  Breakout is usually 2/3 of the way to the apex (where the two lines meet) so there is still a bit of a distance.

Regardless of it being an SHS or triangle pattern the potential downsides are almost the same

To demolish the SHS pattern a close above 4,540.

sp500 d 2209
Source all charts and data: Saxo Group

US500 cfd: Closed yesterday within a few cents from support at around 4,328 (the actual S&P500 future which the US500 cfd is based on closed just a few cents above its support). Bouncing a bit this morning but the trend is down.
US500 needs to close above 4,548 to reverse that.
Next support at around 4,227

us500 d 2209

Nasdaq 100 closed yesterday just a few dollars above its key support at around 14,687. RSI, which has been indicating negative sentiment since mid-August, is back below 40 threshold adding to the bearish outlook strongly indicating Nasdaq will slide lower in coming weeks.

If Nasdaq 100 is closing a week below 14,557 medium-term downtrend is confirmed.

To reverse the bearish trend a close above 15,513 is needed
Nasdaq100 d 2209

USNAS100 cfd closed yesterday around the key support at 14,679. Expect minor bounce before USNAS100 is likely to have another go at the support. The negative sentiment on RSI is indicating USNAS100 will break the support.

Next support at around 14,250
usNas100 d 2209

Dow Jones Industrial Avg. DJI closed yesterday below its medium-term rising trend line just a few dollars above key support at 34,029.
RSI is back below 40 threshold confirming a bearish outlook where DJI is likely to break the 34,029 support.

Next support at around 33,610. If DJI is closing a week below that level downtrend is confirmed on the medium-term

To demolish and reverse this bearish trend a close above 34,978 is needed
dji d 2209
US30 cfd is testing key support at around 32,022. A close below is likely to fuel another sell-off down to 33,600 support and 33,000-32,750 area.
To resume bullish trend a close above 35,012 is needed
us30 d 2209

The Russell 2000 small cap  Index – as illustrated here using the iShares ETF IWM - has broken below its key support at around 180. The small caps are set for a move back down to the 170 area. Levels not seen since Silicon Valley Bank and a few other banks went bust earlier this year.

To demolish the bearish picture a close above 186 is needed
iwm d 2209


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