Technical Update - S&P500 & Nasdaq: Bottom and reversal pattern indicates strong rebound in US equities Technical Update - S&P500 & Nasdaq: Bottom and reversal pattern indicates strong rebound in US equities Technical Update - S&P500 & Nasdaq: Bottom and reversal pattern indicates strong rebound in US equities

Technical Update - S&P500 & Nasdaq: Bottom and reversal pattern indicates strong rebound in US equities

Equity 3 minutes to read
KCL
Kim Cramer Larsson

Technical Analyst, Saxo Bank

US Equities opened lower yesterday on back of CPI numbers and Jobless claims dipping below key supports. But buyers rushed in lifting the market throughout the session forming bottom and reversal pattern on the main Indices indicating strong rebounds. But how high will it move before it hits resistance?



At the open yesterday S&P 500 dipped just below 3,500. 3,500 is an important support level; it is the upper part of the consolidation/correction area from Q3-Q4 2020 and the 0.50 retracement of the 2020-Covid scare low to 2021 peak.

Buyers then took control throughout the session resulting in the Index to form a Bullish Engulfing candle for the day. Bullish Engulfing candle is a bottom and reversal candle which suggests S&P 500 is likely to bounce from here. Divergence on RSI and Volume bigger than normal there is support for the reversal scenario.

Key level to look out for is 3,678 i.e., the lower level of the GAP from last week and a close above the upper trendline in the falling channel.
If S&P 500 can close the gap i.e., a close above 3,727 there is upside potential to 0.618 retracement of September downtrend at 3,879. Resistance at 3,810. 
If S&P 500 closes the week around current levels it is forming a Hammer candle on the weekly chart which indicates bottom and reversal. The Hammer candle is not the strongest signal however, and if S&P 500 closes below the 200 weekly SMA today Friday the Hammer candle has not materialized. However, there is divergence on RSI which supports the rebound scenario.

If S&P 500 fails to close the gap and the Index slides back below the low of yesterday 3,491, there is no strong support before around 3,200 which is the bottom of the consolidation area and the 0.618 retracement of the 2020-Covid scare low to 2021 peak.
 First indication of that scenario to play would be if RSI closes below its rising trendline.

Even if we get a rebound to 3,900 the medium-term downtrend is not reversed. It would take a close above 4,120 to do just that.

Source for all chart and data in this article: Saxo Group

Nasdaq 100 dipped below key support at 10,677 and the 0.618 retracement at 10,589. The Index is still below weekly 200 SMA but weekly RSI is showing divergence indicating a possible larger correction.

On daily chart Nasdaq closed just a few cents below the previous support at 11,037 and has formed a Bullish Engulfing candle similar to S&P 500.
Nasdaq is likely to continue its bounce to test the resistance at 11,272 i.e., the lower level of the GAP. If closing the gap resistance at 11,660.
If this rebound fizzles and Nasdaq takes out lows from yesterday at 10,440 the Index is set for 10K.
First indication of this scenario to play out would be  if RSI closes below its rising trendline.

 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged foreign exchange trading); Type 4 Regulated Activity (Advising on securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.