Update on major US stock indices
For obvious reasons I have been focusing on stock markets in recent weeks. Through October we experienced the biggest monthly points correction ever on the US E-mini S&P 500 and E-mini Dow Jones.
Last week I wrote about the Dow: ‘The outlook is negative and further losses target 24445 and 24320/300, with important support from here down to 24200. This is the best chance of a low for the correction. We are in a longer-term bull trend and this will eventually resume. Try long positions with stops below 24000.’
This happened to be the perfect call. The E-mini Dow Jones bottomed at 24086 on Monday and has staged an impressive recovery as expected. In fact, a 1000-point recovery in less than three days sees the index test important resistance at the short-term 32.8% Fibonacci and 100-period moving average at 25180/250 on the four-hour chart (below).
If you look back to the daily chart at the top, you can see we are hovering just above the six-month trendline going back to the start of May, coupled with the red 200-day moving average at 25120/140. So holding below here is more negative before the nonfarm payrolls figure tomorrow and risks a slide to first support at 25030/000. A move below 25950 targets 24850/830. I expect the downside to be limited but below here look for 24700/680.
Strong short-term resistance at 25150/200 could be used as a selling opportunity today by the bears, with stops above the swing high made this time last week at 25338. A break higher is a buy signal targeting 100-day moving average resistance at 25460/490. Above 24530 look for 25640/650 with strong resistance at 25840/870.
Focus on the S&P 500
The E-mini S&P 500 tumbled throughout October, temporarily breaking 21-month trendline support at 2625/20. However the index bounced nicely just above the 100-week moving average at 2580. In fact we bounced about 1% above this level, from 2603.
Bargain hunters did very well on the recovery through the first 23.6% Fibonacci resistance to reach the next target and stronger resistance at 2733/35. The 100-period moving average added weight at 2745.
There’s a good chance of some profit-taking before tomorrow’s economic release with minor support at 2707/05 but a move below 2700 tests better support at 2685/83. Bulls can try long positions here with stops below 2675. A break lower, however, targets 2670 and support at 2656/54. There’s a good chance of a bounce from here but long positions should have stops below 2645.
If we hold minor support at 2707/05, in what I believe is the start of a recovery, we should target 2713/14, 2722/24 then a selling opportunity at 2733/35. Place stops above 2745. A break higher than 2745 is a buy signal targeting 2750, 2754/55 and probably as far as resistance at 2766/68.
Technical Analyst & Trader
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