S&P 500/Nasdaq Technical Outlook: Don’t Fall in Love with the Rally Just Yet

S&P 500/Nasdaq Technical Outlook: Don’t Fall in Love with the Rally Just Yet

S&P 500/Nasdaq 100 Highlights:

  • S&P 500 finally trades free from congestion
  • First up is trend-line resistance, possible 2nd lower-high
  • Keep an eye on the Nasdaq 100

See what factors are expected to drive the S&P 500 this quarter, along with the Top Trading Opportunities for 2018 on the Trading Guides page.

S&P 500 finally trades free from congestion

It was getting to be a brutal few weeks in the S&P 500 as volatility went from ‘good’ to ‘bad’, that is from clean, but fierce moves to directionless swings, but still fierce. The break higher yesterday puts the market out into ‘open space’ a bit, which means short-term trading should improve.

Looking at the broader picture, though, the upside is still at considerable risk with the potential for a top to form still very much alive. The trend-line running off the record high could be rather significant for the index, as it could cap the current advance and carve out another lower-high.

The trend-line is the next ‘best spot’ to look for opportunities to short. Should we see a breakout above, then the market could still stall out and turn lower, but we’ll want to respect the upward momentum, and depending on price action perhaps flip the script to a more bullish outlook. On a decline in the near-term, the top of the recent congestion will be support until broken.

S&P 500 Daily Chart

S&P 500 daily chart with support/resistance

Keep an eye on the Nasdaq 100

Looking at the Nasdaq 100, a head-and-shoulders pattern is coming into view. It will of course require a turn down relatively soon to form the right shoulder and eventual break of the neckline to validate the pattern, but keep an eye on it.

The Nasdaq 100 is really run by only a handful of household names – Facebook, Amazon, Alphabet/Google, Apple, Microsoft, Netflix – but even as such, that makes it important because these have been market leaders. So goes the leaders, goes the market. For now, the H&S top is only a scenario, but should it come to fruition the market could be in for considerable pain.

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Nasdaq 100 Daily Chart (H&S Potential)

Nasdaq 100 daily chart, head-and-shoulders potential

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—Written by Paul Robinson, Market Analyst

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