S&P 500, Nasdaq 100 Technical Forecast: Bearish

• Stocks continued to show signs of trouble this week.
• Higher rates are on the horizon That and that certainly had an impact on equities, but the question remains how quickly and how aggressively the Fed might start pushing for tougher policy. Markets are now pricing in the FOMC’s first rate hike since the pandemic began in March.
• Next week, the Fed will enter a blackout period ahead of January’s rate decision, meaning there will be no Fed speech. And it’s also an options expiration week, and as our own Justin McQueen pointed out on Friday, this had a rather negative impact on the S&P 500 last year.

Sentiment continues to shift in the US stock market as investors brace for a more hawkish Federal Reserve. This week has produced more signs that the FOMC is preparing to cut even more accommodations and markets are now expecting the bank to deliver that first rate hike since 2018 in March this year.

But, perhaps more importantly, more and more bulls are also expected later in the year. While the Fed pointed to the possibility of 2-3 hikes at its December meeting, markets are now pricing in a median of four rate hikes this year, along with a 30% chance of at least five rate hikes. And while there remains little certainty as to what impact these hikes might have, market participants don’t seem ready to simply wait to see that stocks have started to show greater downside pressure, as has been seen. observed during the first week of the year.

S&P500

The S&P 500 opened this week weak, dropping to a support trendline before bouncing higher. That led to a rebound on Tuesday, helped by not too hawkish comments from FOMC Chairman Jerome Powell before Congress. But then Wednesday brought a 7% CPI reading this started to excite the rate markets again, and all of those gains from Tuesday and Wednesday were withdrawn on Thursday.

Another disappointing piece of data was shown on Friday with retail sales reflecting -1.9% contraction, helping to give the bears another burst behind the sails as prices retraced towards that longer-term trendline.

S&P 500 Technical Forecast: Neutral

While there are arguments for bearish scenarios, that argument looks even more appealing in the Nasdaq 100, which is more rate sensitive and given current themes, the technology could be very vulnerable if a deeper retracement s was establishing.

In the S&P 500, the 4490-4500 point on the chart looks particularly important for buyers before a deeper dip occurs: a breakout of 4490 opens the door to bearish strategies, and the next significant support point n It’s not before the 4200 area comes into play.

S&P 500 daily price chart

Chart prepared by James Stanley; S&P500 on Tradingview

Nasdaq 100 tips below

From an apples-to-apples comparison, the lows have been somewhat larger on the Nasdaq 100. A similarly placed trendline drawn from the November 2020 lows and holding support through 2021, can be seen on the tech-heavy index. And while the S&P 500 continues to dance on its version of that same trendline, the Nasdaq 100 has already begun the breach, starting Monday.

The bulls came in and offered the index to rally back to the 16,000 handle, but that resistance zone remained firm, and the sellers re-entered the scene on Thursday and continued to drive Friday trade forward. morning.

At this point, support holds at the 14.4% Fibonacci retracement of the pandemic run, taking the March 2020 low to the November high.

But, as shared just after the New Year’s open for trading, there was a construction divergence between the Nasdaq 100 and the S&P 500. A series of Nasdaq lower highs from November to December run counter to the highest printed in the S&P. 500.

This further highlights the Nasdaq 100 as a viable vehicle for bearish scenarios in US equities. The forecast will be bearish for the coming week.

Nasdaq 100 Technical Forecast: Bearish

Nasdaq 100 daily price chart:

Chart prepared by James Stanley; Nasdaq 100 on Tradingview

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow james on Twitter: @JStanleyFX