Technical Analyst, Saxo Bank Group
Summary: 3-5% correction should be expected over the next couple of weeks
S&P 500 top and reversal pattern strongly indicating a correction
Nasdaq 100 likely to break bearish
S&P 500 has formed an Evening Doji Star pattern (circled on the chart) which is a very reliable top and reversal pattern especially combined with other indicators supporting the reversal picture.
In this both RSI and MACD have been showing divergence for a couple of weeks (where instrument is making a new high but indicators are not)
That is a sign of weakness of the trend and an imbalance in the market.
Correction is in the cards where S&P 500 is likely to break below the upper very short-term rising trend line. A close below 4,455 is likely to lead to further selling to test the lower rising trendline.
A close below is likely to lead to further selling towards key support at around 4,328. Whether it will reach that levels is very uncertain.
A close below will demolish the medium-term bullish trend.
For S&P 500 to cancel the top and reversal scenario a close above 4,579 i.e., above the Dojo peak, is needed.
On weekly chart S&P 500 can perform a Shooting Star top and reversal candle if it closes today Friday around 4,508 i.e., approx. same level as the week open.
US500 cfd bouncing somewhat but needs to close above 4,578 to extend uptrend. Strong support around 4,375. RSI divergence strong indicating a correction to be seen. Support at around 4,384
Nasdaq 100 failed to test 16K and now seems to be entering correction mode. Divergence on RSI and MACD have been warning about that scenario was likely to play out.
A close below lower rising trendline is likely to spur a sell-off down to support at around 14,687
If Nasdaq closes below 14,687 a larger correction could unfold. However, there is no RSI divergence on weekly chart suggesting uptrend is likely to pick up again after a correction.
USNAS100 cfd has formed an Evening Doji top and reversal pattern (circled) strongly indicating a correction.
A break below lower rising trendline could lead to a sell-off down to key support at around 14,687.
To resume uptrend USNAS100 would need to close above 15,933
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