U.S. Indices Weekly Technical Update

This week, U.S. indices pulled back slightly (less than 0.5% for DJIA and S&P 500, and 0.66% for NASDAQ) after rallying by more than 5% over the previous 7 trading sessions (since the intraday low on May 3 to EOD on May 11).

Technical Overview

S&P 500

Bullish developments – the index closed above:

  • The 2,700 – 2,710 support area (green horizontal trendlines in Figure 1).
  • The January-March resistance (orange trendline, now serving as support).
  • Its 8 EMA, used as one of the shortest-term supports in fast-moving markets (yellow line).

Bearish developments:

  • The down-gap from Tuesday (May 15) was filled, and subsequently, the pre-gap range has served as resistance (purple trendlines).

Major resistance levels:

  • The March high (2,800 – red trendline).
  • The 2,725 – 2,742 range (purple trendlines).

Major support levels:

  • The above mentioned three support levels (green, orange and yellow lines).
  • The intermediate-term support (ITS – violet trendline, currently at 2,630) and the 200 SMA (white line, currently at 2,627), which continue to overlap.

Figure 1. S&P 500 Daily

NASDAQ

Similar to S&P 500, its tech-heavy counterpart held above several key support areas:

  • The April high (7,320 – white horizontal trendline in Figure 2).
  • The lower support of the large trading channel (green trendline; only lower support shown).
  • The 8 EMA (yellow line).

Figure 2. NASDAQ Daily Chart

DJIA

  • There were no major divergences between U.S. indices as the Dow Jones Industrial Average also managed to remain above the 24,500 level (dark blue horizontal range in Figure 3) and its 8 EMA (yellow line).
  • Monday’s high (24,499.19) fell less that one point short of the 24,500 level. A break above will 24,500 will is expected to lead to a swift 500-point jump.
  • The 200 SMA, which provided support during the mid-March and May declines, is currently at 23,910 (white line; retests – white arrows).

Figure 3. Dow Jones Industrial Average Daily Chart

Implications

  • This week’s price action is indicative of a short-term consolidation.
  • Long positions in index-tracking ETFs and constituents are recommended. If indices break their 8 EMAs, hold long positions but no new positions should be initiated.
  • Potential breaks, on a closing basis, of the intermediate-term supports for both S&P 500 and NASDAQ (violet trendlines) 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). If it were to occur, long positions should be closed.

Outlook

  • Bullish short-term outlook as long as U.S indices remain above their respective 8 EMAs.
  • Short- and long-term bearish whenever S&P 500 and NASDAQ break their respective intermediate-term supports.

Featured image courtesy of Shutterstock. 

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