U.S. Indices Technical Outlook:
- S&P 500 trading towards neck-line of H&S pattern
- Nasdaq 100 on verge of testing H&S neckline
- Dow Jones trading around big level from last spring
Dow Jones, S&P 500, Nasdaq 100 Charts Near Big Support, Pattern Test
The S&P 500 rolling over in recent trade has it moving towards the neckline of a head-and-shoulders pattern dating to early September. The pattern, if triggered, could set off a much larger decline in the weeks ahead.
But before we get ahead of ourselves the neckline is support – and support is support until it’s not. These patterns have looked promising before only to never officially trigger the neckline. With that said, we will be paying close attention to how things play out here soon.
A slight breach of the Jan 24 low will have the neckline in full play. If it is to break a small bounce may ensue first, or we could see a slice through the key support level with little hesitation. It will take a large rally that sustains to bring to light the idea that the H&S pattern may fail.
If a clean breakdown does develop the size of the pattern implies we could see a measured move down to around 3600. This would have the SPX 25% off its record highs. The measured move target is determined by subtracting the distance from the head to the neckline from the point where the neckline is broken.
S&P 500 Daily Chart
The Nasdaq 100 head-and-shoulders looks very similar to the S&P 500’s. The NDX is currently testing the low from January, and on a break will have the neckline squarely in play. The measured move target for the NDX is down to around 11k. That would mean the NDX lost ~34% off the 2021 high.
But again, before we put the cart before the horse, the neckline needs to break first. The same outlook holds for the NDX as it does with the SPX when it comes to the neckline. It’s support until it isn’t.
Nasdaq 100 Daily Chart
The Dow Jones is testing a key level right now that runs back to the spring of last year. Right around 33k holds the key for what has developed into a broadening top. These patterns marked by higher highs and flat bottoms indicate a market that is growing increasingly tired with each rally as the sell-offs get a little larger each time.
If we see support break this will officially trigger the pattern and should set off a large decline. This would be consistent with what we are seeing in the broader market and NDX. We may first see a bounce off support before selling off, but it looks increasingly like we will ultimately see lower levels.
The Dow has held up better than the SPX and NDX, but as noted not long ago that will change if we go into full-on bear mode. It is likely not to matter whether it is growth or value, nearly all stocks will get sold during a strong risk-off event.
Dow Jones Daily Chart
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—Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX