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Technical Update - Rebound in US equities. Will it last? S&P500 and Nasdaq 100

Equities 4 minutes to read
KCL
Kim Cramer Larsson

Technical Analyst, Saxo Bank

Summary:  Major US Indices after top and reversal patterns break outs overshooting price targets to find support. rebounds have set in and could take markets 3-5% higher but expect continued volatility and selling pressure is likely to come back


S&P500 reached the Shoulder-Head-Shoulder pattern target and then some racing through all supports during heavy selling. Important support at around 4,300 was breached Monday but late session buying lifted the Index to a close above. Yesterday’s market was a tug of war between buyers and sellers without a winner.

 

SP500 26 D Jan
Source: Saxo Group

However, as illustrated by the US500 CFD (S&P500 future) buyers seem to come back in. Short term selling pressure could be on pause. The Index CFD (future) is approaching the 200 SMA which now acts as a resistance level.
Market could trade higher over the next couple of days possibly to around the 4,500 level. The  trend is however, still down on short term and medium term and more volatility should be expected. Selling pressure is likely to resume if the Index gets rejected below 4,500.

However, if this is a 5 wave down trend we are witnessing a move to the 0.618 Fibonacci retracement level at 4,546 in a 4th corrective wave is not unlikely and will not demolish the bearish picture.
I have drawn some arrows to indicate a possible scenario but please bear in mind that a 4th corrective wave is usually a bit complex correction between 0.382 and 0.618. (Likely an ABC or ABCDE corrective pattern) but it must never go beyond wave 1 i.e. not above 4,581. If the it does the picture is demolished.

 

US500 26 jan
Source: Saxo Group

USNAS100 CFD
Almost similar picture on Nasdaq 100/ USNAS100 CFD (future) which saw a Double top pattern unfolding overshooting its target (14,452) and moved down to support at around 13,838.
The Index future is testing the now resistance at 14,452 and we could see further upside over the next few day’s pushing for the 200 SMA currently around 15K. However, do expect more volatility and choppy markets.  
A move below today’s low could push Nasdaq 100 to test next support at around 13,313.

  

USNAS100 D 26 Jan
Source: Saxo Group

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