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S&P 500, Nasdaq, Dow: Key Support Zones Now in Play

S&P 500, Nasdaq, Dow: Key Support Zones Now in Play

James Stanley, Contributor
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S&P 500, Dow, Nasdaq Talking Points:

  • US equities sold off today, with all of the Dow, S&P and Nasdaq moving-lower and encountering key spots of support.
  • The Fed is in a blackout period this week so there’s no Fed-speak to influence near-term trends. Both the Dow and S&P are testing higher-low support but there may be greater breakdown potential in the Nasdaq which has set up a possible double top formation.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

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It was a rough day in stocks as US equities continued to pull back. I had looked into the S&P 500 yesterday just as price was digging into support at the 4k psychological level. There was also a Fibonacci level there, so there were multiple reasons to bring bulls to the table and that area largely held the lows into this morning’s open, at which point bears made a strong push that has lasted throughout the session.

From the below hourly chart, we can see just how clean that run was as sellers continued to press the matter throughout today’s session, bringing into play a support zone with some slightly longer-term considerations that I’m plotting from 3912-3928.

S&P 500 Hourly Price Chart

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Chart prepared by James Stanley; S&P 500 on Tradingview

Taking a step back, we can see that the current area offering support has been in-play in various ways over the past seven months. Most recently, it had helped to set resistance just before the S&P 500 broke out of a falling wedge formation on the back of inflation data that was released in November. That breakout led to a higher-high and then a higher-low, which printed right in this support zone of 3912-3928 before buyers pushed another higher-high.

That higher-high printed last Thursday, right around the 4100 resistance level which is also where a bearish trendline projects. That trendline joins the swing highs in the S&P 500 this year, and this had helped to produce the current seven-month high in August.

Since that trendline has come into it’s been a stark change-of-pace for bulls, particularly through this week’s price action with the Fed being in a blackout window.

S&P 500 Daily Chart

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Chart prepared by James Stanley; S&P 500 on Tradingview

Dow

Dow futures had gained more than 20% from the October low up to last Thursday’s high and similarly, there’s been a change of pace there over the past few trading days. This morning’s pullback also found support at a level of note and in the Dow’s case, this is taken from the swing-high that was produced on August 26th, the morning that FOMC Chair Jerome Powell took a concise but clearly-hawkish message to markets, warning that the bank was not yet done with rate hikes.

Interestingly, last week’s appearance from Chair Powell had a balanced tone, at least to my ears. The market response, however, was far less so as equities put in a massive ramp on Wednesday afternoon following that speech, which led to the Thursday high. But, Powell was not overly-dovish in that speech and next week we’ll hear more.

This is likely what’s taking a toll as the bounce from October lows has gotten extended, in all three indices but certainly the Dow; so we may be seeing some position squaring ahead of a high risk event on the economic calendar with next week’s FOMC rate decision.

In the Dow, the support level at 33,444 remains of interest for short-term approaches as this is support at prior resistance, and there’s another a little lower, around 33,106.

For bears or for those looking to trade a continuation of equity weakness, there may be greener (or more red) pastures elsewhere, which I’ll look at after the next chart.

Dow Jones Daily Price Chart

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Chart prepared by James Stanley; Dow Jones on Tradingview

Nasdaq Double Top

While the Dow put in a 21.2% move off of the October lows into last week’s high, the Nasdaq’s max move was 15.83% and the S&P 500 at 17.36%. So, the Dow led the charge, with the S&P 500 trailing and then the Nasdaq trailing that.

Perhaps more interesting however is the price action structure. While the S&P 500 has run into a test of the 2022 trendline, the Dow has already jumped above its own variation of the same drawing. The Nasdaq, however, remains fairly far away from a similarly drawn trendline and this highlights how the recovery move in the tech-heavy index has struggled.

And more recently, while both the Dow and S&P jumped up to a fresh high last Thursday, the Nasdaq merely revisited the same high that was in play a couple of weeks earlier.

This sets up a possible double top formation. The neckline for the formation would be the lowest point between the two highs, and I’m tracking that around 11,465. The formation would need a bearish breach to trigger but, if it does, that can open the door for a move down towards 10,785. And if that level comes into play, then we’d be looking at another test of the long-term support zone that’s been so difficult to break for the Nasdaq.

Nasdaq Daily Chart

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Chart prepared by James Stanley; Nasdaq 100 on Tradingview

--- Written by James Stanley, Senior Strategist, DailyFX.com & Head of DailyFX Education

Contact and follow James on Twitter: @JStanleyFX

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

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