Technical update of the S&P 500, Nasdaq 100 and Dax

Equities 5 minutes to read

Summary:  Is this is? The big dive at the end of the mother of all bull runs? And is the 'sell in May and stay away" adage kicking in earlier than usual this year? Let's see what the charts have to say.


As mentioned during Friday's morning call the  S&P 500 formed a bearish engulfing candle on May 1 (circled) which is an indication of a top and reversal. Over the past couple of months the Index has formed a wedge-like pattern where is tested the lower rising trend line on Thursday. 

Stock markets have been ripe for a correction and with the news coming out this morning regarding US/China trade talks and Trump's tweets, now seem to be the time. Volume has been falling during the uptrend, which is a sign of imbalance in the market – fewer and fewer buyers pushing market higher.

Interestingly, there is no RSI divergence which some bulls might pin there hopes on. However, we can still see a top and reversal without RSI divergence. 

Today, US stock markets are indicated to open lower after Asian and European markets have all been hard hit. Sell in May and go away seems to come early this year!

Whether or not this will be a larger correction is still too early to call but a drop over the next few weeks to around the 200-day simple moving average is not impossible. However, there will be some support at around the 2,800 level which is also the 0.618 retracement of the wedge. 

For the market to show more of a correction and turn bearish again, a close below March low at around 2,722 is needed. 
S&P 500 daily chart. Source: Saxo Bank
We can see an identical wedge pattern and falling volumes in both the Dow Jones and the Nasdaq 100. The latter index broke out bearishly from its rising wedge last week and combined with RSI divergence,  this supports the top and reversal picture mentioned in Friday's morning call. 

For the top and reversal pictures that we see across the major Indices to be demolished, a close above highs from last is needed. For the S&P 500, a close above 2,954 would reverse the correction picture.  
Nasdaq 100 daily chart. Source: Saxo Bank
Contrary to the big caps which have tested all-time highs, small caps have been struggling lately and have been nowhere near all-time highs.

The Index of US mid- and small caps, the Russell 2000, has formed what appears to look like an inverted Shoulder-Head-Shoulder pattern. It is not yet confirmed however, as the index hasn’t closed above the neckline. It was close on Friday but with markets indicating a lower opening that break seems to have been postponed (if not totally cancelled – time will tell).
The trend is still bullish but a close below 1,550 could lead to a further sell-off. Bear market if below 1,500. 
Russell 2000 daily chart. Source: Saxo Bank
The Dax touched the 12,430 resistance level on Friday and has opened significantly lower this morning with a huge gap. A correction down to 11,825 i.e. around the gap in April, is not unlikely. A close above 12,430 is needed to reverse the correction picture.  
Dax daily chart. Source: Saxo Bank

Tip: Did you notice there are colours added to the x-axis making it easier to read. It’s a new feature. You can find in the chart configuration dialog on SaxoTrader.

Disclaimer

The Saxo 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 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 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 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 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 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/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
3 Church Street, #30-00
Samsung Hub
Singapore 049483

All departments are available 08:30 to 17:30 Monday to Friday.

Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.