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Dow Jones, S&P 500, Nasdaq 100 Technical Forecast Sours

Dow Jones, S&P 500, Nasdaq 100 Technical Forecast Sours

Paul Robinson, Strategist

U.S. Indices Technical Highlights:

  • S&P 500 slowly rolling over after notching new record high
  • Nasdaq 100 appears set to lead to the downside
  • Dow Jones strongest, but has bearish pattern potential
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Dow Jones, S&P 500, Nasdaq 100 Technical Forecast Sours

The S&P 500 is slowly rolling overafter notching a new record high just last week. With the market below the prior high in February, the next level of support to watch is a trend-line and slope rising up from last year.

The two lines both lie within the vicinity of 3815/800, and have the potential to forge a higher low in the broader uptrend. But with the way the NDX, in particular, is looking (see below), a larger sell-off could be underway towards the 3700 area and worse.

S&P 500 Daily Chart (rolling over)

S&P 500 daily chart

S&P 500 Chart by TradingView

The Dow Jones has been the leader as old school value stocks have been outperforming new school growth. There are a pair of top-side trend-lines that the Dow recently breached to reach new record highs, but it is now failing back below these lines. These top-side trend-lines make up what is becoming a potentially explosive wedge situation, where the March trend-line acts as the lower threshold of the pattern.

If the recent crossing over the top of the formation continues to fail towards a decline below the underside trend-line, it could be constituted as an “overthrow” that signals an exhaustion in the trend. In the event we see the March trend-line broken we could see a rather sharp decline unfold.

Dow Jones Daily Chart (wedge overthrow?)

Dow Jones daily chart

Dow Jones Chart by TradingView

The divergence between the S&P 500/Dow and the Nasdaq 100 suggests vulnerability at the very least in the tech sector, if not the entire market. The Nasdaq 100appears to have posted a meaningful lower high scenario that will lead to a new cycle low in what may only amount to a corrective pattern, but possibly worse.

A decline to a new low would likely have the 200-day in play along with the lower part of a developing downward channel. This would imply a decline to the 11900/700 area. This roughly aligns with the weekly log chart channel we’ve been watching the past few years. The top-side trend-line was once a strong level of support until the NDX rose above it last year, when it then flipped to a source of support. A test of the upper band (~11500/700) will be an important bull market test.

To turn the picture around in the near-term, we will need to see a close above what is currently being viewed as the lower-high, which resides at 13312.

Nasdaq 100 Daily Chart (new leg lower appears to be in motion)

Nasdaq 100 daily chart

Nasdaq 100 Weekly Log Chart (looking for test of channel)

Nasdaq 100 weekly chart

Nasdaq 100 Charts 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.

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