US stocks have been on a solid run in the last seven weeks. The Nasdaq reached a new two-year low the day after the FOMC rate decision last month, and the S&P 500 set it’s low the following day, as the middle of June marked the bottom for stocks.
Bulls have been powerful and dominant ever since. The rise that initially seemed to be short-covering has continued and is now in its ninth week, with the S&P 500 rising by as much as 14.62 percent and the Nasdaq 100 growing by as high as 20.92 percent during that time. The Nasdaq is in a bull market with a 20% return.
The conversation is centered on Fed policy and the likelihood that the bank will make a turnaround. The expectation that the Fed could halt its rate rise approach to allow the rate hikes have already made more time to take effect as US economic data began to improve in Q2 was growing. At the most recent FOMC press conference, Chair Powell made a few remarks that offered bulls’ optimism. Judging by the market reaction—equities are soaring after that rate hike—it would seem that there is some evidence to back that notion.
However, there was a little different last week. A steady stream reminded markets of Fed speakers that policy tightening is still ongoing. Despite being at the “neutral rate,” as Chair Powell had said only one week ago, inflation is still high, and the Fed is “nowhere near done” tackling it.
With the publication of CPI statistics for July on Wednesday, inflation will again be in the news this week. The headline statistic, which came in at 9.1 percent last month but is predicted to register at 8.7 percent for July, is also projected to decline somewhat. However, from the previous month’s reading of 5.9 percent, core inflation is predicted to increase to 6.1 percent.
A few weeks ago, the S&P 500 emerged from a falling wedge shape and has since rallied. A resistance zone that extends from a Fibonacci level at 4085 up to a previous price action area of support at 4138 came into play last week. Price presented a breakthrough on Wednesday and has been chugging ever since.
Given how much grinding had occurred in this area in February/March when it served as support and again in May/June as support-turned-resistance, the S&P 500 is in a vast zone of resistance drawn from historical backing. There is a multitude of levels to pick from.
Another crucial area is above, from 4223 to 4258. Notably, last week’s S&P 500’s weekly bar finished as a Doji, a symbol of uncertainty. Based on the headlines, it would seem that the fundamental background mirrored that technical hint, with Fed speakers being more vocal about their ambitions to raise interest rates. Bulls have continued to advance this week, and the index is already challenging last week’s high.
DAILY PRICE CHART FOR S&P 500
There is a chance for a positive breakthrough now that the price is re-testing the resistance area from the previous week’s high. The next area of resistance that I’m monitoring is at the last swing low of 4195 in price action. After that, a Fibonacci level at 4223 enters the picture, and at 4258, another price action swing occurs.
As a previous double-top/triple-top formation, 4303 is a vast area of interest if bulls can keep up the momentum.
The critical level of support is 4085, which represents a 38.2 percent retracement of this year’s sell-off. Last week, that price found help, and if bears can push lower, bearish themes could become a little more intriguing.
Four-hour price chart for the S&P 500
TRENDLINE TEST FOR THE NASDAQ 100
By any standard, the Nasdaq has increased by up to 20.92 percent from its bottom in June. But at a crucial trendline that connects the swing-highs in November and April, that trend is now being tested.
On Friday, the trendline projection came into play and supported the high. It came under pressure early this week, but a pre-market earnings announcement from NVDA managed to moderate the price decline.
Even though there was a recovery in the late session that softened the candle’s bottom and printed with some long wick, which isn’t ideal for a bearish engulf, Friday’s bar finished as a bearish one. But this week’s primary focus is whether or not that high is maintained until the Wednesday CPI reading.
Just below is a significant support zone that extends from 12,894 to 13,050. A push below 12,814 would interest sellers hoping for a resumption of the negative trend.
A previous triple top formation that peaked out at 13,535 is the next resistance.
DAILY CHART OF THE NASDAQ 100
I think the Dow is more optimistic in the near term than any of the abovementioned indexes. The Dow futures are breaking out following the US equities open while the S&P and Nasdaq are circling resistance levels. Additionally, last week witnessed defense at a crucial area of confluent Fibonacci support, seen on the chart around the 32,400 regions. The 2022 sell-38.2 off’s percent Fibonacci retracement is located there, and the 50 percent point of the same move charts at 33,236, which I’m monitoring as the Dow Jones’s next area of resistance.
EIGHT-HOUR DOW CHART