Quarterly Technical Outlook - S&P 500, Nasdaq 100, DAX, FTSE 100, FTSE 250 and Hang Seng Index Quarterly Technical Outlook - S&P 500, Nasdaq 100, DAX, FTSE 100, FTSE 250 and Hang Seng Index Quarterly Technical Outlook - S&P 500, Nasdaq 100, DAX, FTSE 100, FTSE 250 and Hang Seng Index

Quarterly Technical Outlook - S&P 500, Nasdaq 100, DAX, FTSE 100, FTSE 250 and Hang Seng Index

Equities 4 minutes to read
KCL
Kim Cramer Larsson

Technical Analyst, Saxo Bank Group

Summary:  In 2023 the main Equity Indices are pointing to lower levels:
S&P 500 is looking at 3,200. Key strong support
Nasdaq 100 below 10K
DAX 11,450
FTSE 100 Range bound. Could be the year for breakout
FTSE 250 could be looking at 15K possibly lower
Hang Seng towards 11K


Quarterly Technical Outlook 
In this piece I try to have a look what could be in store for Equities in 2023. The overall picture looks a bit grim with the main Indices having downside potential of 15% but could drop much lower if key supports are broken. 
This is not a 2023 year-end prediction but more what could happen in the new year. The speed of a price movement is even harder to predict than the target price itself.   
Some of the levels have previously been mentioned in 2022 Technical Updates.
As always, for each of these quite bearish scenarios to be demolished or even reversed important price levels must be observed.  

 



S&P 500

S&P 500 is in a down trend on daily, weekly and monthly time periods. It was rejected at the upper falling trend line on the weekly mid-December and seems set for another down move. The main averages: Short-term 21, Medium-term 55 and longer-term 200 weekly SMA’s are all declining i.e., the underlying sentiment is down.

RSI, however, is showing divergence which would indicate a (down)trend reversal. But if RSI closes below its rising trendline and below the 40 threshold there is great likelihood RSI also will drop to new lower levels supporting the down trend and new lows on S&P 500. S&P 500 is set for at test of October lows at 3,491.
If that scenario plays out, which I regard as quite likely S&P 500 could drop to strong support at around 3,200.
3,200 will be key for rest of 2023. A close below – not just a spike below – but a weekly close below could lead to a collapse down to the 2020 trough around 2,200 and the 200 monthly SMA. Support around 2,800-2,750.

Source all charts and data: Saxo Group

On the monthly chart there has been massive divergence on RSI since 2020. That divergence needs to be traded out either by a new higher high on the Index or by RSI closing a month below 40.

December month formed a Bearish Engulfing candle i.e., December opened higher than November close and closed lower than November open, a clear sign of bears being taking back control after bullish October and November. Three times there has been a Bearish Engulfing candle since the peak´, and every time a sell-off to new lows has followed.

 

Quarterly chart is changed to logarithmic scale to illustrate the magnitude of the Sup-prime/Financial Crisis 2007-2009. What is interesting is that the trough of the Corona-scare in 2020 is within few points of the 0.618 Fibonacci retracement of the 2009-2022 Bull market that followed the Sub-Prime crisis trough in March 2009. S&P 500 peaked on the first trading day of 2022.

To demolish this Bearish outlook a close above 4,352 is needed. 

Nasdaq 100
Nasdaq 100 didn’t even test its upper falling trendline before sellers took back control sending the Index close to October lows. If Nasdaq 100 closes below October trough at 10,440 there is support around 9,736 but potential for much lower levels.
A move to 9K seems likely. However, 9K is not a strong support level. In fact, there is not much support until around the 2020 lows at around 6,771 but Nasdaq could dip to 2019 lows below 6K.   

Weekly RSI is showing negative sentiment but also divergence i.e., the past months of selling has weakened. However, if RSI closes below its lower rising trendline and below 40 threshold RSI is likely to make a new low with lower Index levels. If Monthly RSI closes below 40 it will be the first time since 2008. But is also the first time since 2009 that it has been lower than 50 as it currently is.

On the monthly chart December formed a Bearish engulfing candle meaning sellers are in control. Well, sellers have been in control for the better part of 2022. Monthly RSI is still showing positive sentiment a monthly close below 40 is needed to change that to negative. However, a new low below October low will is likely top push RSI to negative with likely lower Index levels as a result.   

 

Quarterly chart changed to Logarithmic scale. Fibonacci retracement measured from the trough after the .com bubble implosion and the trough after the Sub-prime crisis places 0.618 retracement close to the trough at the Corona-scare in 2020 i.e., around 7K. That level could be reached if Nasdaq drops below 9,700 and panic spreads. The psychological dynamic should not be ignored.

For Nasdaq to reverse the down trend a weekly close above 13,721 is needed.

 

DAX

The overall picture and indicators for DAX are indicisive.
When DAX performed a weekly close above 13,985 back in early November it reversed the medium-term downtrend.
The Strength Indicator RSI went to show positive sentiment indication higher levels. However, with DAX failing to close above 14,958 the Index seems to be vulnerable and could turn negative. Down trend on daily time period is already confirmed but weekly has not yet reversed. IF DAX closes below its 200 weekly SMA the bearish picture is likely to unfold.

On the monthly chart DAX is in a down trend with RSI showing negative sentiment. A close above 14,709 is needed for DAX to resume uptrend. If DAX closes below its 55 monthly SMA we are likely to see a test of the support at around 11,556A close below could fuel a sell-off that is likely to push DAX to the 200 monthly SMA.

FTSE 100

For almost two years FTSE 100 has stuck in a range between 6,700 and 7,700. That picture could very well continue in 2022. If FTSE 100 closes below 7,300 a test of the lower band is likely.

If FTSE 100 closes below 6,700 the support area low at around 6,400 is likely to be tested.
If break out to the upside i.e., above 6,700 new all-time should be expected.

FTSE 250

For the UK economy FTSE 250 mid cap is probably more interesting to follow. The Index is in a down trend on all time periods.

Short-term it was rejected at its upper falling trendline and a move below the medium-term falling trendline is likely. If that occurs the bear trend will resume and most likely pick up pace and drop to lower levels around 15K. Support at around 16,700 is key.
On the monthly chart FTSE 250 bounced off the 0.618 retracement of the 2020-2021 bull market. Trend is still down and is likely to continue to around the 0.786 retracement and the 200 monthly moving average.
For FTSE 250 to reverse the down trend a close above 20,467 is needed.

Hang Seng Index

Is at a crossroad. 20,185 is key for further upside that could confirm a medium-term uptrend.
If it fails to close above and weekly RSI is rejected at the 60 threshold bear trend is likely to resume.

However, Hang Seng has formed what appears to be a Shoulder-Head-Shoulder pattern on the monthly chart. The Index has potential to drop to the strong support area 11,345-10,676.
RSI currently moving above 40 threshold but is still showing negative sentiment on both weekly and monthly chart, and if the strength Indicator RSI closes back below 40 we are likely to see new lows.

 

RSI divergence: When instrument price is making a new high/low but RSI values are not making new high/low at the same time. That is a sign of imbalance in the market and an weakening of the uptrend/downtrend. Divergence or imbalance in the market can go on for quite some time but not forever. It is an indication of an exhaustion of the trend


Author is holding a short position in DAX

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