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S&P 500, Nasdaq 100, Dow Jones Analysis: Risk of Another Bear Market Rally

By Justin Mcqueen

13:22, 5 October 2022

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In this article:
US500
US 500
3932.6 USD
-13.2 -0.340%
US100
US Tech 100
11496.1 USD
-72.3 -0.630%
US30
US Wall Street 30
33586 USD
-50 -0.150%

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Stock Market Chart
Outlook for S&P 500, Nasdaq 100, Dow Jones - Photo: GettyImage

S&P 500 Price Analysis 

After a tremendous rally in risk assets to begin the quarter, today we are seeing markets taking a bit of a breather as US indices drift lower. Similar themes once again emerge in the latest uptick, as market participants ponder a possible central bank pivot. While we have seen the likes of the RBA raise rates less aggressively (25bps vs 50bps expected), we had not seen that same slowdown from the RBNZ overnight and are unlikely to see the Federal Reserve take their foot off the gas with inflation remaining as sticky and elevated as it is. Therefore, this appears to be more of a bear market rally with a pivot from the Fed still not in sight, unless we see a notable decline in inflation. Consequently, economic data will be the key factor as to whether this rally persists, most notably the upcoming Non-Farm Payrolls report (October 7th) and the US CPI print (October 13th). However, with that said, my bias remains for rallies to be faded with the trend remaining bearish.

From the technical front, the latest rebound in the S&P 500 (US 500) did coincide with the first test of the 200WMA (3591), a key support level that has aided this pivot. This adds to the fact that technicals have provided noteworthy points of interest for turnarounds throughout this bear market in risk appetite. A reminder that the June-August bear market rally faltered exactly at the 200DMA. As such, topside resistance is situated at the late September highs (circa 3930) and the 100DMA (3963).

Trading With Moving Averages

At the time of writing, the latest ADP report printed above expectations at 208k vs 200k expected, while the prior month's reading had been revised higher by 53k. In turn, this is likely to raise expectations for a firmer than expected NFP report on Friday. 

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US30

33,586.00 Price
-0.150% 1D Chg, %
Long position overnight fee -0.0164%
Short position overnight fee 0.0059%
Overnight fee time 22:00 (UTC)
Spread 2

US500

3,932.60 Price
-0.340% 1D Chg, %
Long position overnight fee -0.0163%
Short position overnight fee 0.0059%
Overnight fee time 22:00 (UTC)
Spread 0.7

DE40

14,282.20 Price
-0.150% 1D Chg, %
Long position overnight fee -0.0086%
Short position overnight fee 0.0004%
Overnight fee time 22:00 (UTC)
Spread 1.5

HK50

19,024.00 Price
-2.110% 1D Chg, %
Long position overnight fee -0.0295%
Short position overnight fee -0.0149%
Overnight fee time 22:00 (UTC)
Spread 31.0

S&P 500 Chart: Daily Time Frame

S&P 500 Chart. Photo: Capital.com. Source: Tradingview

Nasdaq 100 Price Analysis

Much like the S&P 500 the tech-heavy Nasdaq 100 (US 100) has also rebounded aggressively and while the index briefly broke below its 200WMA, the US election lows (~10,900) had underpinned. As such, this will be the area to watch on the downside, in which a break below would likely open the doors towards 10,600 and the pre-Covid highs of 9750-9800. Meanwhile, resistance resides at 12,100-12,250. 

 

Nasdaq 100 Chart: Daily Time Frame

Nasdaq 100 Chart. Photo: Capital.com. Source: Tradingview

Dow Jones Price Analysis

Arguably the Dow Jones (US 30) is having a tougher time than both the S&P 500 and Nasdaq given the blue-chip index had breached its pre-Covid peak. As I have said above, while we have seen a modest recovery, the path of least resistance remains tilted to the downside with 30,000 being the key psychological barrier in the short-run for the Dow Jones.

Dow Jones Chart: Daily Time Frame

Dow Jones Chart. Photo: Capital.com. Source: Tradingview

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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