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Short-term Tug-of-War

With less than a week before the end of an unprecedented year, the U.S. stock market is playing a short-term tug-of-war. Some traders are slightly cautious given the sharp rally as they expect profit-taking, window dressing activities, and the lack of liquidity ahead of the holidays can create a choppy and volatile environment. However, other traders remain upbeat heading into the seasonal strength period as portfolio adjustments favor another rally to new record highs.

The two opposing views may be the culprit to U.S. market indexes moving in two different directions, near-term. For instance, the S&P 500 Index (SPX) and the Dow Jones Industrial Average (INDU) have been confined to a high-level consolidation via well-defined trading ranges over the past month. The technology-heavy Nasdaq Composite Index (COMPQ), on the other hand, continues with its leadership role via a 2-month uptrend channel.


Attached below are three key U.S. stock market indexes and the key technical levels (support and resistance) that will likely decide the next directional trend of the respective markets.

SPX Index (SPX – 3,690.01)


The recent sharp 10/30/20-12/18/20 rally or +492.76 points (+15.24%) has led to a high-level consolidation phase between 3,633.40-3,636.48 (Dec 2020 lows) and 3,711.24-3,726.70 (Dec 2020 highs). It appears SPX has spent the past month consolidating its 15.24% gains within a primary short-term uptrend. The ability of SPX to maintain above its uptrend (3,648) and its Dec 2020 lows (3,630-3,636.5) may lead to the next SPX move. A convincing surge above 3,726.70 (12/18/20 high) confirms a breakout and hints of +93.3 points or an SPX target to 3,820, near-term. On the other hand, violation of 3,633.40-3,636.48 confirms a breakdown and warns of -93.3 or downside to 3,540.


Dow Jones Industrial Average (INDU – 30,129.83)


For the past month, the Dow Jones Industrial Average and the S&P 500 have been trading in lock-step with one another. It remains technically constructive that both have been consolidating their Oct-Dec 2020 via trading ranges. The intra-day chart shows the recent pullback in the Dow Industrial Average held onto key underlying support near 29,755.50-29,820.80 (Dec 2020 lows). However, the blue-chip average still needs to clear above 30,343.59 (12/18/20 high) to confirm a technical breakout. A confirmed breakout renders +1,411.90 points or the next INDU target to 31,755.50. Below 29,755.50-29,820.80 warns of the next correction to 28,343.5.


Nasdaq Composite Index (COMPQ – 12,771.11)


The intra-day chart shows the Nasdaq Composite Index (COMPQ) in a pattern of higher-highs and higher-lows as evidenced by a 2-month uptrend channel between 12,559 and 12,990. A strong technology sector continues to propel COMPQ to record highs. The recent COMPQ relative strength channel breakout also reaffirms its leadership role. Although the MACD and RSI indicators are neutral, the December seasonality factor hint at more upside. The ability of COMPQ to retain its uptrend channel (12,559) can lead to the next rally to 12,990. Above 12,990 confirms an accelerated channel breakout and suggests +431 points or the next COMPQ target to 13,521. A convincing move below 12,525-12,559 warns of a correction toward 12,094.


Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com


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