Technical Analyst, Saxo Bank
Summary: S&P 500 has lost half of gains since October. But could lose more going in to 2023
Nasdaq 100 is fast approaching its October low and could drop below in 2023 maybe even before year-end
Dow Jones testing falling trendline. Will medium-term uptrend be reversed or could it hold on?
S&P 500 has lost 50% of gains since October trough. Touching 3,800 during yesterday’s session a minor bounce the next couple of days could be seen. However, the trend is down confirmed by RSI closing below 40. Strong support at around 3,720. A close below that support S&P 500 will be set for a move towards October trough at around 3,491.
The leading US Equities Index was rejected at the falling trendline and has resumed its downtrend on the medium-term – see weekly chart - indicating a move to 3,200 in Q1-Q2 2023.
There is a cluster of Fibonacci and support levels around 3,200; 3,258 is the 1.382 projection of the October-December correction and 3,200 is the bottom of the Consolidation area back in 2020. A few points below, is the 0.618 retracement of the entire 2020-2022 uptrend at 3,195.
RSI is still showing divergence however, but if RSI closes below its lower rising trend and below 40 threshold a move lower to the 3,200 level is in the card.
For S&P 500 to reverse this bearish scenario a close above 4,100
Nasdaq 100 touched the lower trendline in what seems like a slightly rising channel. A bearish break below is quite likely supported by RSI yesterday closed below 40 threshold i.e., in negative sentiment.
Nasdaq 100 is on course to test October low at around 10,440.
However, a move lower (below October low) is not unlikely. If Nasdaq 100 closes below 10,440 a move below 10K should be expected. Support at around 9,736 just a few points below the 1,382 projection of the October-December correction at 9,781.
If weekly RSI closes back below 40 this bearish scenario is likely to play out. A daily close above 12,167 is needed to reverse this bearish scenario.
Dow Jones Industrial Index is testing the medium-term falling trend (black) line. RSI has showed divergence for a couple of weeks warning of a likely trend reversal/correction. Currently RSI is still in positive sentiment though, it needs to close below 40 to change that.
If RSI closes below 40 and Dow Jones breaks below the falling trendline further sell-off down to support at around 31,738 could be seen.
However, the 200, 100 and 55 daily SMA’s provide some support. 200 SMA is currently flat around the 0.382 retracement around 32,400.
Medium-term Dow Jones is technically in and uptrend with positive sentiment but if S&P 500 and Nasdaq performs as described above Dow Jones will not go untouched and could drop to around 30K i.e., 0.786 retracement of the October- December uptrend.
For Dow Jones to resume its uptrend a move 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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