Macro: Sandcastle economics
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Technical Update - S&P 500 breaking key resistance, 4,300 is in sight. Historic rebounds indicate Nasdaq could move 8-10% higher
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Nasdaq 100 uptrend seems strong. A test of the resistance at 13,542 this week is likely. It can be a struggle to penetrate it however, as RSI is starting to show divergence.
However, if Nasdaq 100 closes above the 13,542 resistance, next strong resistance is at 14,265. is next strong resistance. Declining 200 SMA will add to the resistance meaning a possible scenario, given that Nasdaq closes above 13,542, is that it shoots up above the 200 SMA and then retrace.
The level around 14,265 is interesting, if looking at the Monthly chart it is quite close to the 0.618 Fibonacci retracement level at 14,577. Why is that level interesting? Let’s have a look back in time:
For that we must look back historically to learn from the past; In 2000 at the peak of the .com tech bubble, when the bubble bursts the first sell-off pushed Nasdaq 100 down with 40%. It was followed by a strong rebound of approx. 40% to the 0.618 Fibonacci retracement. Then the big almost three years downturn hit.
In 2007 when market was hit by the Sub-prime crisis, Nasdaq was experiencing a 25% sell-off. Market then recovered 23% to around the 0.618 retracement before the big downturn hit in 2008.
Fast forwarding to present. Nasdaq dropped 34% in Q1 and Q2 this year but is now rebounding. So far it has bounced 22%. If Nasdaq should bounce to the 0.618 Fibonacci retracement like it has done previously it will reach levels at around 14,577 that is roughly 33%. If that scenario plays out it would be quite similar to previous scenarios and Nasdaq is to be hit by heavy selling after reaching 14,265-14,577 level.
In the event that Nasdaq would move much past the 0.618 retracement the above-described scenario is likely to be demolished and higher levels are likely
S&P 500 closed yesterday above its key resistance at 4,177 with a gap. Bears might want to try closing the gap next couple of days and if they succeed the uptrend Is likely to reverse. However, the uptrend seems strong and there is room up to key strong resistance at 4,300. An overshoot of the 4,300 level to test the 200 SMA and the medium-term falling trend line is not unlikely. With no divergence on RSI that scenario is likely to play out.
If S&P 500 is also to rebound to around the 0.618 Fibonacci retracement the Index could reach 4,367 i.e. approx. 4% higher
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