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S&P 500 & Nasdaq 100 Test Support Levels of Critical Mass

S&P 500 & Nasdaq 100 Test Support Levels of Critical Mass

2016-04-12 10:00:00
Paul Robinson, Strategist
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What’s inside:

  • S&P 500 – A battle around the 2040 mark
  • Nasdaq 100 putting up a fight at 4450
  • Focused on 1 to 2-day trades, hourly chart primary

The gap higher and morning strength yesterday in the S&P 500 put the bears’ resolve to the test, and for a moment it looked as though it would trade above the Friday high at 2061, leading to the beginning of a break in the downward trend (channel) off the April 4 high. But it was not to be, the market quickly found sellers and rejected the notion of making a break for it, reversing course for a second consecutive day (which further cements the case for lower prices in the immediate future). By the cash close the S&P 500 (CFD) settled right at key support surrounding 2040. The late-day drop put the Nasdaq 100 right in the thick of critical support between 4450 and 4460. The Dow remains postured slightly stronger, with a bit less clarity.

A battle around the 2040 mark

This is what we had to say yesterday about this critical level: “We suspect on another break below 2040 the market is unlikely to bounce back above any time real soon given that the developing down-trend off the April 4 high is becoming increasingly visible and the numerous attempts to hold 2040.”

In early US morning hours, the S&P is bouncing around this critical area, again. It is continuing to make attempts to hold above after moving below, but the real test will come once the cash market opens at 9:30 EST. The general trend on the hourly coupled with the failures to hold rallies the past two days leads to believe it will sustain trade below at some point today. But it could be another 'fake-break' as was the case on Thursday. If a move lower can unfold in today's cash session we look for this prior floor to become a ceiling. Conversely, another full recapture and move higher will bring into focus the to-side trend-line and 2061.

S&P 500 Hourly

S&P 500 & Nasdaq 100 Test Support Levels of Critical Mass

Nasdaq 100 putting up a fight at 4450

The Nasdaq 100 is bouncing from an overnight test of 4450, which represents a critical area of support similar to the 2040 area for the S&P 500. A sustained break below would complete a topping formation; call it a complex ‘head-and-shoulders’, ‘mountain-top’, ‘descending wedge’, or any other name you like. If nothing else, the recent sequence of lower highs coupled with a slight lower lows/flat-line level of support (descending wedge) is bearish in the immediate-term until invalidated. Sustained trade below 4500 has us looking at 4375 down to 4350. It would require a clean break above 4517 to threaten the current bearish view.

Nasdaq 100 Hourly

S&P 500 & Nasdaq 100 Test Support Levels of Critical Mass

Focused on 1 to 2-day trades, hourly chart primary

Should the market move lower, the S&P may still develop and trigger a ‘bull-flag' pattern on the broader daily time-frame, but for now we continue to keep our time-frames short and operate off the hourly until something more substantial develops on the daily. It’s been a market of swings recently, and to reiterate, the favored approach continues to be taking trades with 1 to 2-day time horizons based primarly on the price action unfolding on the hourly charts.

Looking for longer-term forecasts? Check out one of our guides for further details.

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter @PaulRobinsonFX, or email him directly at instructor@dailyfx.com.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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