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Update on major US stock indices

Jason Sen

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.’

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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).

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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.

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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.

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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.

Jason Sen

Technical Analyst & Trader

For more information and trading education visit InterTrader

The content of this article is the personal opinion of the author and not InterTrader. You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.

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