Technical Forecast for Dow, S&P 500, FTSE 100, DAX and Nikkei
It was a rough month of October for global stocks, and November opened on a more positive note as the rally off the lows from Tuesday and Wednesday extended into Thursday trade. But a nasty pullback on Friday morning may have just offered traders a tip as to what’s the primary cause of the pressure, as a series of tweets from US President Donald Trump appeared to push American equity indices in a couple of different directions in the latter portion of the week. On Thursday, an optimistic tweet from President Trump appeared to show thawing relations between the US and China, even offering a potential meeting at the G-20 meeting set to take place later this month.
That was largely walked back on Friday morning, and along with that came a pullback in stocks as both the Dow and the S&P 500 gave back Thursday gains, finding a bit of support at key areas on each respective chart. In the Dow, this came in around the 25,133 level that I was looking at in the Wednesday report, while the S&P 500 clung on to the 2700 handle.
As markets move deeper into November, a number of risk items remain. The situation between the European Commission and the newly-elected Italian government remains of concern, as Italy has until November 13th to produce a revised budget satisfactory to the demands of Brussels. Brexit continues to provide a number of question marks as to how it will actually be executed; and in the United States, mid-term elections, tariffs and a persistently-hawkish Fed all populate the horizon. The wall of worry, at this point, appears difficult to surmount without resolution on any of the above items.
S&P 500 Finds Resistance at 50% of Feb-Sept Major Move
The week started with pain for US stocks as Monday marked an extension of the October sell-off. But, a bit of support began to show at the 78.6% Fibonacci retracement of the February-September major move, and that helped prices to bounce through the middle of the week until a bit of resistance began to show at the 50% marker. The level around 2735 helped to hold the highs from Wednesday-Friday, and this struggle suggests that the bullish trend in stocks may not yet be ready for continuation. The worry at this point is that this bounce is corrective in nature after a really strong short-side push held through most of last month.
The forecast for the S&P 500 will remain at neutral for next week.
Technical Forecast for the S&P 500: Neutral
S&P 500 Daily Price Chart
Dow Holds 61.8% Fibonacci Support After Friday Pullback
The blue chip index has held up a bit better through the past month of equity pain, as the Dow remained above that prior June swing-low that showed-up just ahead of this summer’s breakouts. Last week the forecast was set to neutral, and on Wednesday I published a technical piece on the index looking for higher-low support in the zone that runs from 25,000 up to 25,129, which is the 61.8% Fibonacci retracement of the June-October major move. That support held through Thursday morning and that led into a vigorous bounce that lasted into Friday morning.
The one-two combo of hope on the tariff front being walked back combined with a really strong NFP report helped to dent that move, and prices reverted right back to this key zone of support. At this stage, the Dow appears to be a bit more attractive for bullish US equity plays given this more structure, and this can re-open the door for bullish equity strategies on the index. The forecast for next week on the Dow will be set to bullish.
Technical Forecast for the Dow for next week: Bullish
DJIA Four-Hour Price Chart
FTSE 100 Finds Support at Prior Resistance
A bit of positivity on the Brexit-front this week helped to bring a bid to British markets, and the FTSE 100 broke above a key area of prior resistance on the chart. The Friday pullback saw prices flow back to find support at this prior interval of resistance, and this is something that may lead into an eventual bullish bias. At this point, the move appears to new to chase, and this can remain on the radar for the coming weeks should that pattern of strength continue to hold. The forecast for next week will remain at neutral, but a re-test of the 7250 level could re-open the door to bullish strategies should that take place.
Technical Forecast for the FTSE next week: Neutral
FTSE Four-Hour Price Chart
DAX Recovers From Support After October Brings Fresh 18-Month Lows
The DAX had an especially difficult month of October as prices broke down to a fresh 18-month low. Worries around Europe continued to drive risk assets lower, and the next two weeks bring a number of items to the fray around the brewing situation between the European Commission and Italy. Given how aggressive last month’s sell-off was, it becomes a bit simpler to discount this week’s strength as a rally from deep oversold low. The potential for bearish continuation in the index remains, and the forecast for next week will be set to bearish.
Technical Forecast for the DAX: Bearish
DAX Weekly Price Chart
Nikkei Finds Resistance at Prior Trend-Line Support
It’s been feast or famine in the Nikkei for the past couple of months, as a swift September breakout to fresh 27-year highs was aggressively faded through October trade, pushing prices below a two-year bullish trend-line in the process. This week’s bounce came up to find resistance at this prior area of trend-line support, and given that this bounce comes after a fresh lower-low had printed, the door can remain open to bearish strategies in the index. The forecast for next week on the Nikkei will remain at bearish.
Technical Forecast for the Nikkei: Bearish
Nikkei Daily Price Chart
Chart prepared by James Stanley
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--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX