US stock markets hit first targets on the downside; US dollar outlook still negative
In my article on 27 May I discussed a potential move to the downside in US stock markets. The E-mini S&P then traded sideways for almost two weeks, but eventually broke the black four-month trendline to hit our first target of 2075/70 yesterday.
This target and support at 2075/2070 held perfectly. We saw a strong bounce from here back up to the 100-day moving average (the blue line above) and this should signal the end of the three-week correction at this stage. We are looking for a recovery now back up to the mid-2090 area and perhaps as far as a re-test of that important black trendline, around the 2105/10 area. If we cannot break above here, this could signal the start of a medium-term bear trend for the E-mini S&P.
The E-mini Dow Jones has now fallen about 300 points since my article on 27 May but, again, there’s good reason to think that this market bottomed out yesterday and can stage at least a short-term recovery. Our first target would be 17,890/17,900 with a break above 17,950 expected to target 18,000 and perhaps even make it as far as the black trendline resistance at 18,100/120.
It does look unlikely that we will be able to break back above this important trendline resistance however, and failure to do so would signal the start of a more medium-term negative trend for this market as well.
The E-mini Nasdaq has hit our second downside target – the 100-day moving average which had risen to 4390 by the time it was reached. As you can see in the chart below, this held the downside perfectly, and it looks likely that we will recover now in the short term at least.
I want to finish off by reviewing the other main market I have been writing about in recent weeks. The US dollar has very much been the focus of attention, with speculation about when or even if the US Federal Reserve will raise interest rates. In last week’s article I discussed how the dollar appears to be establishing a bear trend into the summer.
We did see a break below 95.50 to hit our first target at 94.75. A strong bounce from here took the index back up to retest the 10-month trendline. This was rejected and once again the dollar has begun to sink. I’m sticking with the theme of a weaker dollar into the summer and looking out for a break below that 94.75 level for our next target of 94.00 and perhaps as far as the May low of 93.14 before the end of June.
Note how the purple 55-day moving average is closing in very quickly on the blue 100-day moving average line. It seems almost inevitable that a negative cross will happen within the next week or so and this would act as a longer-term sell signal for the dollar.
Jason Sen – Technical Analyst & Trader
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