U.S. Indices Weekly Technical Update: May 11

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.

Author:
http://www.linkedin.com/in/konstantindimov