Equities Q4 Technical Forecast: S&P 500 Bounces Back, DAX 40 and Nikkei 225 Faced With Indecision
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Equities Talking Points:
- Bullish momentum faces strong resistance ahead
- S&P 500, DAX 40, and Nikkei 225 key levels to watch for the 4th quarter
After months of riding above a rising trendline and marking continuous all-time highs, the S&P 500 has ended the third quarter with a slightly more negative tone. That said, despite the all-time bears getting excited, the pullback so far seems to be just that, a pullback. I struggle to see this as the beginning of something more given the amount of demand for US equities, and a possible increase in upcoming share buy-backs keeping equities supported.
So, looking ahead, the S&P 500 would ideally need to re-position itself above its ascending trendline to keep the bullish trend it has seen the last 3 quarters. And, to be honest, a week away from ending Q3 the index is already in a good position to do so, with the only immediate threat of resistance being the area where the 50-day and 20-day SMAs are converging (4,455 – 4,468).
I would expect the S&P 500 to continue pushing to new all-time highs in Q4, with regular corrections as traders take profits along the way, but the overall bullish trend shouldn’t be at risk as long as the index holds above 4,200 throughout the next few months.
S&P 500 Daily Chart
The DAX 40 has tried on numerous occasions during the third quarter to break above the 16,000 mark but hasn’t succeeded thus far. In fact, the price of the DAX 40 at the end of the quarter is roughly where it started three months ago, with any minor gains having being reversed during the first three weeks of September.
But there have been numerous attempts from buyers to break higher, as shown on the Weekly chart by the hammer candlesticks circled in red, with the latest taking place after the recent pullback, a sign of a possible price reversal on the upside.
DAX 40 Weekly Chart
The Nikkei 225 has been a strong outperformer throughout the last month of Q3 as Prime Minister Suga’s announcement of resignation has sparked optimism about more capital injections into the economy under the new government. The breakout from the descending channel has seen the index break above the 30,000 mark, achieving a new 31-year high. But the last few candlesticks on the weekly chart are showing signs of indecision, with a hanging man formation possibly signaling a bearish price reversal in the works.
Holding above the 30,000 mark is going to be challenging in the immediate future so we may see a pullback towards recent support around 29,500 before buyers are able to gain further momentum. The bullish trend will be intact as long as it holds above 28,000, otherwise the Nikkei risks falling back into the descending channel once again.
Nikkei 225 Weekly Chart
--- Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
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