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Charu Chanana
Chief Investment Strategist
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Technical Update - US Indices turning bearish after taking out key supports
Kim Cramer Larsson
Technical Analyst, Saxo Bank Group
S&P 500, Nasdaq and Dow Jones Indices closed below key support yesterday and have now turned bearish. S&P 500 and Nasdaq were rejected at medium-term falling trendline and seems to be resuming the over all bearish trend after the correction.
Nasdaq 100 could test October lows
S&P 500 closed yesterday below support at around 3,906 initiating a downtrend after being range bound for the past couple of weeks.
The Index was rejected at the medium-term falling (black) trendline dropping below 200 daily SMA is and is now set to resume the medium-term bearish trend.
RSI is still above 40 i.e., showing positive sentiment but trend is down. If RSI closes below 40, which seems quite likely within the next few days, next support is around 3,724 – the 0.618 retracement – and 3,700.
For S&P 500 to reverse this bearish trend a close above 4,110 is needed.
Nasdaq 100 closed below key support at 11,450 and seems set for a move towards October lows. Whether it will drop to that level this year remains to be seen but trend is down.
Nasdaq 100 didn’t even test the medium-term falling trendline showing the lack of strength from the buyers.
RSI broke below its rising trendline indicating we could see a break of the 40 threshold i.e., moving in to bearish sentiment.
For Nasdaq to reverse the short-term bearish trend a close above 12,167 is needed.
Dow Jones Index has been showing RSI divergence for quite some time suggesting an exhaustion of the October-November uptrend. With the close below support at 33,239 yesterday the trend has reversed. Dow Jones is likely to drop to the 0.382 retracement at 32,400 where the 55 and 200 daily SMA’s will provide some support.
However, if RSI closes below 40 the correction will likely have potential to support around 31,727. For Dow Jones to reverse this bearish trend a close above 34,712 is needed.
RSI divergence explained: When the price of an instrument 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 a 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
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