Technical Analyst, Saxo Bank
Summary: US stock market seems indecisive and could be range bound for a while. Technical indicators do not give clear signals
S&P 500 rejected at falling trendline
Nasdaq still struggling for upside momentum
Dow Jones uptrend seems to be weakening but looks the strongest of the main Indices with uptrend on both short- and medium-term
Russell 2000 is close to test key resistance
Today's Saxo Market Call podcast.
Today's Market Quick Take from the Saxo Strategy Team
S&P 500 was rejected at the medium-term falling trendline yesterday to close once again below 4K. Indicators are inconclusive; RSI closed Friday above 60 and 55 daily moving average (SMA) is rising i.e., in positive sentiment short- to medium-term but 200 daily SMA is declining i.e., underlying negative sentiment medium- to longer-term.
The rejection at the falling trendline is also negative.
Trend is also still down and S&P 500 needs to close above 4,110 to reverse that.
However, adding the Ichomoku cloud indicator (second chart image) the picture is bullish. The index is above the cloud which indicates further upside potential. The key resistance is 4,110 though meaning next couple of days could be decisive.
If S&P 500 closes below 3,877 selling pressure is likely to resume pushing the Index towards key support at 3,764.
If S&P 500 closes above 4,110 there is short-to medium-term potential to 4,300
Nasdaq 100 tested the 0.618 retracement at 11,594 during yesterday’s session. Sentiment is still bearish however, with RSI still below 60 and all Moving Averages declining. If Nasdaq can move higher to close RSI above 60 threshold i.e., shifting to positive sentiment there could be further upside potential. But the falling (black) trendline would still be a resistance it needs to break and for Nasdaq 100 to further confirm uptrend a close above 12,167 is needed. If that plays out Nasdaq would be back above the 200 SMA which is still in decline.
If the Index slides back lower to close below 11,050 Nasdaq 100 is likely to test October lows around 10,480 and would be likely to drop lower .
On the cloud Nasdaq 100 is testing the upper range of the cloud. If it fails to break above it is a negative indication.
Dow Jones Industrial was hit by heavy selling after being rejected at the 0.786 retracement at around 34,255. If Dow Jones slides lower to close below 33,420 selling pressure could increase and a test of key support at around 32,573 is likely.
Still RSI divergence - a sign of a weakening of the uptrend – but it is still showing positive sentiment. Bottom line RSI seems indecisive here. RSI must close above the horizontal line to cancel the divergence.
Russell 2000 is close to test key resistance at 1,906. RSI above 60 indicates a break is likely . A close above could lead the way to higher levels with no resistance until around 2,022 which is also the 1.618 Fibo projection November-December correction.
For Russell 2000 to reverse this bullish picture a close below 1,792 is needed.
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
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