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S&P 500, Nasdaq 100 Starting the Week off Weak, Levels to Watch

S&P 500, Nasdaq 100 Starting the Week off Weak, Levels to Watch

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U.S. Indices Technical Highlights:

  • S&P 500 rolling over, bearish-looking pattern may lead to March trend-line
  • Nasdaq 100 has a channel line, then March trend-line to watch

SPX, NDX starting week off soft

The S&P 500 began to soften just a little last week, and with futures down this morning the softness is set up to continue to start the week. The recent sag may be quickly reversed as the prior record high in Jan is met at 3870, or perhaps the pattern we highlighted last week is set to send prices into full-on pullback mode.

Last week, we looked at the emergence of a Reverse Symmetrical Triangle, or “RST”. These patterns are marked by higher highs and higher lows, a representation of growing instability in the trend. Often these lead to reversals of some sort, but not always.

There are a couple of ways the downside can play out. Either momentum will start to pick up as price rolls over, or the decline will be met with buying that results in a bump higher. If the pattern is bearish, the bump higher will prove transient and result in a lower-high from the record high, followed by a decline beneath the low of the initial pullback. These can be a little easier to execute, as you have a lower-high, lower-low scenario to work with (see chart).

With the March trend-line running higher, the latter scenario is quite a viable one and would be a welcomed event. As the trend-line could put in the initial low that is followed by a break below not only that low but the important March trend-line. An ideal scenario to have a long-term level involved in the short-term set-up. But just remember, it is just a scenario at this point, one that may very well never come to fruition. We will take it one step at a time…

In the even the March trend-line breaks, 3694 would be the next big low to target. As long as the March trend-line holds, though, then we will continue to respect the broader uptrend.

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S&P 500 Daily Chart (RST, March trend-line)

S&P 500 daily chart

S&P 500 Chart by TradingView

The Nasdaq 100 futures are off by 1.4% at the time of this writing, suggesting a fairly sizable down open. It will be interesting to see if the gap can be erased and if the market is able to hold onto those gains. It will be a test of how strong the market currently is, as in uptrends down gaps are often met as buying opportunities. On the downside, watch the channel line and then the March trend-line.

Nasdaq 100 Daily Chart (Channel, then March trend-line)

Nasdaq 100 daily chart

Nasdaq 100 Chart by TradingView

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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