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Market Jitters or Something More?

One day after FED Chairman Powell reiterates to Wall Street that rising inflation is only transitory and the FED does not anticipate raising interest rates, stock market indexes tumbled today. Investors again focus on the reopening of the economy, and the pick-up in consumer demand that may trigger a sharp jump in inflation, forcing the Fed to raise interest rates.


On the macro front, commodities such as WTI Crude Oil and Brent Crude Oil tumbled as they approach their respective 50-day moving averages at 58 and 61, respectively. We recommend traders monitor these technical support levels closely to determine if this is only profit taking or the start of something more. Also, earlier in the day, the 10-year US Treasury yield (TNX 1.73%) climbed to a 13-month high of 1.75% before slipping marginally into the close of trading.


The energy sector (XLE – 4.49%) and Technology (XLK -2.77%) took the brunt of the selling today. All three US stock indexes ended the day sharply lower. The blue-chip Dow Jones Industrial Average (INDU) slipped 0.46% after setting an all-time intraday high above 33,000 for the first time in history. The broader-based large-cap S&P 500 Index (SPX) declined 1.48% for the day. The selling was concentrated within the technology-laden Nasdaq Composite Index (COMPQ) as the index fell 3.02% and the Nasdaq 100 Index (NDX) also dropped 3.13%.


The last two weeks of the quarter are around the corner. Stocks may experience heightened volatility in the days and weeks ahead as money managers and professional investors rebalance their portfolios toward the end of the quarter. Enclosed below are technical updates to the intra-day charts of SPX, INDU, COMPQ, and NDX.


S&P 500 Index (SPX – 3,915.46)


SPX recorded a new all-time high at 3,083.87 (3/17/21). SPX also completed a triangle breakout above 3,915 (3/10/21). The triangle breakout suggests 317.95 points or an SPX target of 4,233. However, on a near-term basis, recent consolidation can lead to SPX retesting its trading support at 3,880-3,884 or near the extension of the triangle breakout and the 38.2% Fibonacci retracement of the 3/4 to 3/17/21 rally. Violation here warns of the next SPX decline to 3,789,5-3,823 (2/26/21 low and the 61.8% retracement), and below this to 3,723-3,741 (3/5/21 higher-low and bottom of triangle). A breakdown below 3,723 warns of the start of a deeper correction.


Dow Jones Industrial Average (INDU – 32,862.30)


INDU has emerged as a leading market index, as evidenced by the 2-month accelerated channel breakout above 32,280 (3/10/21). Since the height of the channel is 1,600 points, this would suggest an INDU target of 33,880. On a trading basis, consolidation can bring about a near-term pullback toward 32,434 or the extension of the top of the channel breakout, and below this to 32,001 (3/8/21 short-term breakout). Failure to find support here warns of a deeper correction to 30,547.5-30,835 (3/4/21 low, Feb 2021 uptrend, and the bottom of the accelerated channel).


Nasdaq Composite Index (COMPQ – 13,116.17)


COMPQ and technology stocks have been weakening after achieving their respective all-time highs during mid-Feb 2021. However, there are technical signs of a potential near-term bottom as evidenced by a head and shoulders bottom. The head is 12,397.10 (3/5/21 low), the left shoulders are 13,004-13,024.5 (2/23 and 2/26/21 lows), the right shoulders are 13,035-13,102 (3/10 and 3/18/21 lows). The neckline is 13,595-13,621 (2/24, 3/1, 3/16, and 3/17/21 highs). Above 13,621 confirms a breakout and suggests +1,224 points or the next COMPQ target to 14,175.10 (2/16/21 all-time high), and above this to 14,844 (h/s bottom breakout target). COMPQ is nearing a critical phase as it nears the left/right shoulders (13,004-13102). Violation here warns of the next decline to 12,397.10 (3/5/21 reaction low), and below this to 11,173 (breakdown target).


Nasdaq 100 Index (NDX – 12,789.14)


A potential short-term head and shoulders bottom may be developing in NDX. The head is 12,208.40 (3/5/21 low), the left shoulders are 12,763-12,770 (2/23 and 2/26/21 lows), the right shoulders are 12,727-12,781.5 (3/10, 3/12, and 3/18/21 lows). The neckline is 13,280-13,312 (2/24, 3/1, 3/16/, and 3/17/21 highs). Above 13,312.40 confirms a head/shoulders bottom breakout and suggests +1,104 points or the next NDX target to 13,879.80 (2/16/21 all-time high), and above this to 14,416 (h/s bottom breakout target). On the downside, violation of the left/right shoulders (12,727-12,770) warns of the next decline to 12,208.40 (3/5/21 reaction low), and below this to 11,104 (breakdown target).


Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

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