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Nasdaq – ‘The’ Line-in-the-Sand to Watch; S&P 500, Dow Jones to Follow

U.S. Indices Highlights:

  • Nasdaq 100 channel keeps market pointed higher for now
  • S&P 500 falls shy of a record high, to follow NDX
  • Dow Jones trying to make up ground, too little too late?

The Nasdaq may be in retreat mode from the recent high, but as long as it stays tucked within the confines of a neat upward channel in place since April the outlook remains generally bullish. Given the length of time it has been running higher in it and how far we are off the March low it could break at any time. However, it is viewed as prudent to wait for an actual break to occur first before looking for a decline to take hold.

The lower parallel of the channel may be used by would-be longs to position for another leg up, while the same line can be used, if broken, for turning towards potential short opportunities. If status quo remains then look for a test of support to hold before another push to new highs, but if character changes then it will be very important to see how any type of bounce unfolds following a break.

With the Nasdaq home to the bull market darlings (FANMAG), a make or break situation could have broad implications going forward as to how things play out not only in the U.S., but globally as the U.S. equity market accounts for roughly 55% of global stock market capitalization.

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Nasdaq Daily Chart (channel guide)

Nasdaq daily chart

Nasdaq 100 Chart by TradingView

Last week, the S&P 500 finally filled the February 24 corona-gap, but fell just shy of a new record high yesterday. Getting above 3393 will clock a new record, but getting across that line may be a bit of a struggle. Like the NDX there is some slope support even if it isn’t as strong. The line rising up from May is around the bottom of the corona-gap and will be an important one for the market to hold should we see a pullback develop.

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S&P 500 Daily Chart (failed near record high)

S&P 500 daily chart

S&P 500 chart by TradingView

The Dow Jones remains a laggard overall, but did make up some ground relative to the SPX and NDX in the past week. It is still shy of the corona-gap starting at 28402 running up to 28992. It will take a big of a haul for the Dow to get back to its record high at 29568, a level that would require a strong breakout by the S&P 500 to accomplish. There is support on a pullback around 27070, with a recent set of short-term peaks and slope from May in the area.

Dow Jones Daily Chart (lagging but remains supported)

Dow Jones daily chart

Dow Jones Chart by TradingView

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—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX