U.S. Indices Weekly Technical Update: May 4

As Apple is making a new all-time high, U.S indices found their footing, moving sharply higher on Friday (May 4). While today’s move attracted most of the attention, it is really Thursday’s price action that is of the greatest significance.

Technical Overview

S&P 500

  • On Thursday, the index retested both its intermediate-term support (ITS – violet trendline in Figure 1) and 200 SMA (white line). The candle on the day was a doji hammer – quite the development when the lower wick is touching two major support levels.
  • Price action on Wednesday through Friday formed a modified morning star pattern.
  • Next major resistance remains the trendline connecting the January & March highs (orange trendline currently at 2,715).
  • Next major supports – the intermediate-term support (ITS – violet trendline, currently at 2,615) and 200 SMA.

Figure 1. S&P 500 Daily

NASDAQ

  • The tech-heavy index outperformed S&P 500, making a higher low on Thursday.
  • On Friday, the index broke above its short-term resistance (i.e. March & April resistance – orange trendline in Figure 2).
  • Next major resistance – lower support of long-term trading channel (green trendline; only lower support of the channel shown).
  • Next major support – the intermediate-term support (ITS – violet trendline, currently at 6,925)

Figure 2. NASDAQ Daily Chart

DJIA

  • On Thursday, the index bounced off the 23,500 level (only 150 points away from retesting the Feb 9 and April 2 lows – green horizontal trendline in Figure 3).
  • Similar to S&P 500, DJIA found support at its 200 SMA on Thursday (white line).
  • Next major resistance – resistance formed by connecting the January and April highs (orange trendline, currently at 24,450).
  • Next major supports – 200 SMA and 23,350 (Feb and April lows)

Figure 3. Dow Jones Industrial Average Daily Chart

Implications

  • Further bullish momentum likely in the short-term.
  • Price action continues to confirm the significance of the intermediate-term supports (i.e. each successful retest further validates the trendlines). Potential breaks of the intermediate-term supports for both S&P 500 and NASDAQ will carry significant bearish implications, with downside targets of at least 10 to 15%.

Outlook

  • Neutral with a bullish bias.
  • Short-term bullish if S&P and DJIA break above the orange trendlines.
  • Short- and long-term bearish if S&P 500 and NASDAQ break their respective intermediate-term supports.

Featured image courtesy of Shutterstock.