S&P 500 at a Decision Point, Upside Target in Sight
The S&P 500 continues to make new all-time highs but recently hesitated after touching the 5,500 marker. The index began Q2 with a sharp pullback that proved to be relatively short-lived as bulls piled in to send the index to 5,505.
Apart form the first few weeks in April, pullbacks have been limited affairs, with the US stock market continuing to push on. The major upside target carried over from Q2 remains at the 1.618 Fibonacci extension of the major 2022 decline at 5,638 with additional bullish momentum potentially tagging the 5,700 level.
Downside levels of consideration are scarce given the lack of pullbacks presented in the bull market. The May swing low of 5,190 presents a potential level of support with an extreme sell-off highlighting 4,954 – the April swing low.
S&P 500 Weekly Chart
Source: TradingView, prepared by Richard Snow
If the latter stages of June are anything to go by, Q3 could start off much like Q2 with a move lower. Price action has been limited by the psychological level at 5,500, acting as resistance for now.
The daily chart also presents the current overbought nature of the market. The index oscillated above and below overbought territory for an extended time from the end of 2023 until March 2024. The difference there was the rally was being enjoyed by an increasing number of companies unlike what is unfolding now, as fewer names trade above their 200 SMAs average.
S&P 500 Daily Chart
Source: TradingView, prepared by Richard Snow
After acquiring a thorough understanding of the technical landscape in Q3, why not see what the fundamental backdrop suggests by downloading the full US Indices forecast for the third quarter?
Nasdaq to Remain Sensitive to the High-Flying Nvidia
With fewer stocks than the S&P 500, the Nasdaq is likely to be more volatile in Q3. The index is made up of the top 100 non-financial companies listed on the Nasdaq exchange and therefore has a greater weighting and sensitivity to the US’s biggest companies.
The index also shows a strong bull trend and signs of fatigue. On the weekly chart below, the strong recovery since the April swing low sees the index eying the 1.618% Fibonacci extension of the major 2022 decline at 20,673 with the potential to head towards the 21,000 mark. A number of headwinds already mentioned in the fundamental analysis earlier, could help keep bullish momentum relatively contained. However, if inflation falls sharply giving the Fed the green light to lower interest rates, the index may reach the upside target with ease.
On the sort side, 18,190 appears as the first level of support – the low of the weekly decline seen in late May. Thereafter, 17,765 appears as a secondary level of support, lining up with the temporary March swing low. An excessive sell-off would be needed to test the April sell-off/swing low of 16,974.
Nasdaq 100 Weekly Chart
Source: TradingView, prepared by Richard Snow
Dow Jones More Likely to Feel the Effect of the Less Inclusive Equity Rally
The Dow Jones (DJI) is a price weighted index made up of 30 of the largest stocks in the US representing all sectors apart from transportation and utilities. It therefore, carries less or no exposure to the stocks performing really well at the end of Q2 (Nvidia, Apple and other tech stocks) and is more likely to consolidate within abroad range.
Most of DJI price action in Q2 was encapsulated by the grey rectangle, restricting the index between 38,000 and 40,000. The non-directional nature of the index suggests we could see more of the same type of consolidation playing out in Q3. To the upside, a string of bullish momentum could surpass Q2’s cap and reach 40,500, while the downside level of interest is better defined at 36,952 – the level consistent with the full retracement of the major 2022 decline.
Dow Jones Industrial Average (DJIA) Weekly Chart
Source: TradingView, prepared by Richard Snow
