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U.S. Indices Weekly Technical Update: May 11

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This week, U.S. indices exhibited their most bullish price action since the 2018 correction ensued. This up-move, in comparison to the February and April rallies, is expected to “have legs”.

Technical Overview

S&P 500

  • Today (May 11), the index made another high for the month, after breaking above two key resistance levels on Thursday:
    • The January – March resistance (orange trendline in Figure 1)
    • The 2,700 – 2,710 area, which served as resistance in April (yellow horizontal trendline).
  • Minimum short-term upside target – 2,800. Likely to retest the January high in a swift manner if 2,800 is broken.
  • Major resistance – the March high (2,800).
  • Major supports – the intermediate-term support (ITS) and 200 SMA (currently both at roughly 2,620 – violet and white lines), and the resistance-turned-support orange trendline.

Figure 1. S&P 500 Daily

NASDAQ

  • On Tuesday (May 8), the index pushed above two key resistance levels:
    • The 7,320 level (the April 18 high – white vertical line in Figure 2).
    • The lower support of the large trading channel (green trendline).
  • Retest of the March high appears imminent after this week’s price action.
  • Major resistance – the 7,474 – 7,637 range (i.e.the range or prices prior to the down-gap of the island reversal in March; island reversal – red ellipse; down gap – white arrow).
  • Major support – the lower support of the trading channel (green trendline) and the intermediate-term support (ITS – violet trendline, currently at 6,950).

Figure 2. NASDAQ Daily Chart

DJIA

  • On Wednesday (May 9), the index closed above several resistance levels and completed a 2-month inverse H&S pattern (bright blue horizontal trendline in Figure 3).
  • The upside target from the H&S pattern lies at roughly 26,200 (bright blue vertical trendline).
  • Major resistance – the 25,500 level may serve as resistance (i.e. the origin of the mid-March correction – yellow horizontal trendline).
  • Major supports – the 200 SMA (white line, currently at 23,883) and 23,350 (Feb and April lows – green horizontal trendline). Above, 24,500 (prior resistance-turned-support) may also support the index during pullbacks.

Figure 3. Dow Jones Industrial Average Daily Chart

Implications

  • U.S. indices are expected to retest their 52-week highs over the next quarter or two.
  • Short positions should be closed unless trades are entirely based on idiosyncratic factors.
  • Long positions in index-tracking ETFs and constituents recommended.
  • Potential breaks of the intermediate-term supports for both S&P 500 and NASDAQ at any point in the future should take precedence over all other technical developments (i.e. a break below the ITS will negate any bullish outlook).

Outlook

  • Short- and intermediate-term bullish.
  • Short- and long-term bearish whenever S&P 500 and NASDAQ break their respective intermediate-term supports. Considered less likely in the short-term after this week’s price action.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    4.3 stars on average, based on 16 rated postshttp://www.linkedin.com/in/konstantindimov




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    Analysis

    Pre-Market: Sell The Rumor, Buy The News?

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    After a long period of uncertainty, the US finally decided to commence with the second round of tariffs directed at China, slapping a 10% levy on $200 billion worth of goods, and threatening with tariffs on another $267 billion of goods in case of a Chinese retaliation. The tariffs will increase to 25% in 2019, but for now, the Chinese response was measured, with only an announcement coming from the Chinese ministry of commerce, saying that the country has no choice but to retaliate.

    Shanghai Composite, 4-Hour Chart Analysis

    While stock futures fell initially following the after-hours announcement by Donald Trump, today equities are slightly higher across the board, with even the Shanghai Composite staging a rally off its fresh bear market low. The new tariffs were widely expected by the market, so the “buy-the-news” response is understandable, but for a sustained rally in Chinese assets, a resumption of the trade talks between the two largest economies would likely be needed.

    DAX 30 Index, 4-Hour Chart Analysis

    The main European indices are little changed with the DAX still hovering around the 12,000 level and the EuroStoxx 50 being stuck ear 3350. Both benchmarks hit three-week highs in early trading, but the rally on the Old Continent is still lacking real momentum, especially given the distance to the bull market highs.

    EEM (Emerging Markets ETF), 4-Hour Chart Analysis

    Emerging markets are still very weak with the recent bounce being barely visible on the charts, and the segment is still stuck in a strong downtrend, with especially the most vulnerable countries weighing heavily. Emerging market currencies are mixed today, with the Turkish Lira completely erasing its rate hike gains, but with the Brazilian Real, the Chinese Yuan, and the Argentinean Peso being relatively stable after the US trade announcement.

    S&P 500 Index Futures, 4-Hour Chart Analysis

    Stocks are set to open slightly in the green on Wall Street, with the major indices still being within striking distance of their all-time highs, and with only the Nasdaq pulling back meaningfully recently. The S&P 500 is just a tad below its record high, and with the MACD indicator back in neutral territory, a move to new highs could still be just around the corner.

    Dollar Stable as Oil Jumps Amid Syria Escalation

    Interestingly forex markets remained stable despite the trade war escalation, with the Dollar drifting slightly lower compared to its major peers, and losing a bit more ground against the main China-related currencies. Commodities are also higher today, with especially the China-linked copper and crude oil being in the green and gold trading virtually unchanged.

    WTI Crude Oil Futures, 4-Hour Chart Analysis

    While the scope of the Syrian conflict shrank in recent months, the tensions around the last rebel stronghold Idlib are rising. Russia and Turkey (which back opposing forces) surprisingly announced the formation of a demilitarized zone around the city to avoid a siege and a likely bloodbath, but overnight, a Russian recon plane was downed, which could lead to a reescalation in the country.

    Russia is blaming Israeli forces for the casualty, and an open conflict between the two countries would be increase risks in the region, and possibly drive oil prices higher. The Brent Oil contract has been already outperforming the WTI one thanks to the sanctions against Iran, and today Saudi officials stated that the Kingdom is comfortable with the $80 per barrel Brent price, further widening the divergence between the two contracts.

    Featured image from Shutterstock

    Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    4.6 stars on average, based on 347 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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    Analysis

    Crypto Update: Monday Selloff Drags Majors Lower

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    The cryptocurrency continues to show mixed short-term signs following last week’s Ethereum-led bounce, and the subsequent consolidation. Today, all of the majors sold off after the US open, triggering downgrades in our trend model, but the two largest coins, barely, retained their short-term buy signals, holding up above key support levels.

    Ethereum remained north of $200, while Bitcoin is still above the $6275 level, but the total value of the market is back at $195 billion as BTC failed to gain ground during last week’s rebound, and as several coins failed to join the move. The odds of a failed rally got higher after today’s selloff, and the move still only qualifies as a counter-trend one, with the long-term downtrends being in no danger in most cases.

    XMR/USD, 4-Hour Chart Analysis

    Monro, which has been the third major on a short-term buy signal, is also still positive in our model, despite bouncing lower off the $120-$125 resistance zone and getting close to testing the $108 support level. The coin is now trading slightly below the rising short-term trendline and it would need to show strength quickly to retain stay on a buy signal. Further support is found near $100, while key long-term resistance is ahead at $150.

    ETH/USD, 4-Hour Chart Analysis

    Ethereum fell back to the $200-$205 support zone today, and the coin is trying to establish a swing low, following the initial rally of its 15-month low. Despite the pullback, ETH is still on a short-term buy signal, but given the segment-wide long-term weakness, traders should still not enter full positions. A sustained move below $200 would warn of a test of the lows and a possible new leg lower, with strong resistance still ahead at $235 and $260 and with further support found at $180.

    Market Still Lacking Sustained Strength

    BTC/USD, 4-Hour Chart Analysis

    Bitcoin fell back to $6275 again after failing to show bullish momentum last week, and although BTC is still trading with relatively low volatility, well above the crucial support zone near $5850, the recent days are not positive for crypto-bulls. A sustained move below primary support would warn of a test of the weaker support near $6000 and a likely move to the key long-term zone, with resistance levels now ahead at $6500, $6750, and $7000.

    XRP/USDT, 4-Hour Chart Analysis

    Ripple’s weakness is also a warning sign for bulls, as the third largest coin not just failed to join the rally last week, but it turned lower today, threatening with another move towards the August lows. XRP is still trading within its short-term range, and it remains on a neutral short-term signal, but further weakness could quickly trigger a sell signal. Support below $0.26 is found near $0.23, while resistance is ahead at $0.30, $0.3130, and $0.32.

    EOS/USD, 4-Hour Chart Analysis

    EOS also remained weak during the recent altcoin bounce and now it is back on a short-term sell signal after dipping lower together with the broader market, plunging below $5 yet again. Now, a test of the August lows and a move to $4 is once again the most likely, with only the support between $4.55 and $4.65 found above the August low, while strong resistance is ahead between $5.35 and $5.55.

    Featured image from Shutterstock

    Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

    Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    4.6 stars on average, based on 347 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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    Analysis

    Crypto Update: Downtrend Looms for Binance Coin

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    Binance Coin/Bitcoin (BNB/BTC) is one of the few altcoins that’s in the green this year. The pair is up by over 145% year-to-date. The gains can be shocking, especially if you consider that most crypto pairs are down by 70% – 90%. That’s because BNB/BTC has been known to move against the general cryptocurrency market trend. The pair rose just as many popular altcoins started to plummet.

    Recently, however, we’ve seen a good number of altcoins show bullish signals. If BNB/BTC counters the overall trend, then could it be possible that it is in danger of becoming bearish? In this article, we show how a major shift in the trend looms for Binance Coin.

    Presence of Bearish Divergence

    Seasoned traders know that a bearish divergence is a sell signal. It indicates that the market has lost its upward momentum. Thus, it would be difficult to sustain the ascent even if prices continue to rise. Without momentum, the market is in danger of reversing its trend.

    Pull up the weekly chart of BNB/BTC and you’ll see a bearish divergence on the weekly chart.

    Weekly chart of BNB/BTC

    BNB/BTC managed to climb even though momentum was dissipating. Switch to the daily chart and you’ll see an even larger bearish divergence.

    This indicator is telling us not to buy the recent dip. Chances are the uptrend is already over.

    Emergence of a Reversal Pattern

    On top of a bearish divergence, BNB/BTC is forming a head and shoulders reversal pattern on the daily chart. This is further evidence that upward momentum is disappearing. The lower high of 0.0019999 that the market generated on August 09, 2018 is a sign of weakness. This means that demand has significantly decreased.

    Daily chart of BNB/BTC

    Currently, BNB/BTC is struggling to stay on top of 0.0014 support. In addition, technical indicators show that a breach is on the horizon. Volume has been thin even though the market is just above the support. Also, the daily RSI has been generating a series of lower highs.

    Without volume and momentum, BNB/BTC is at risk of triggering the reversal pattern.

    Entrance into Bear Territory  

    Technical analysts have different definitions of a bear market. One of the most common definitions used is an asset enters bear territory once it drops by 20% from its recent high. That’s because in a bull market, participants would consider a 10% – 15% dip as an opportunity to bargain hunt. With strong optimism, markets tend to bounce and resume the uptrend.

    A 20% fall from the recent high generally means that participants are no longer optimistic about the market’s outlook. They are not racing to place long positions even though prices have significantly dropped because traders are afraid. We’re seeing this dynamic in BNB/BTC.

    Fibonacci levels of BNB/BTC

    BNB/BTC is hovering just above the 50% Fibonacci level. That means that the market has lost close to 50% of its value from the recent high of 0.0026555. Yet, buyers are scarce. When a significant number of participants realize that demand is not going to be as strong as it used to, they will very likely dump their positions. That should ignite the downtrend.  

    Bottom Line

    Binance Coin may be in the green this year but it appears that change is coming. With many popular altcoins showing signs of life, BNB/BTC is revealing reversal signals. These include the presence of a bearish divergence, the emergence of a head and shoulders pattern, and the entrance and stay in bear territory.

    Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    3.6 stars on average, based on 234 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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