S&P 500, Nasdaq, DAX 40, Hang Seng technical update
12:44, 26 January 2023
We seem to be at an inflexion point in equity markets. Take the S&P 500 (US 500) for example, and how the index is attempting to hold above its 2022 descending trend line, and doing so quite successfully for now. It seemed last week that stocks were going to undo the bullish rally seen throughout the first two weeks of the year but the appetite to push higher seems to be unbeaten for now.
US equities are consolidating higher this week despite the weakness seen on Wednesday on the back of disappointing earnings. The focus is pretty much still on recession fears and whether interest rate hikes have already done too much damage, which is why the “bad data is good” rhetoric has weakened over the last few weeks. Take last Wednesday as an example, when we saw the PPI, retail sales, and industrial production for December all come in lower than expected. A month ago that would have been positive for equity markets but now traders are not so sure. At the end of the day, bad data is bad for the economy, regardless of the impact it may have on the Federal Reserve’s mandate. In fact, some economists believe that inflation data is lagging and that it is no longer a threat to the US economy, in fact, quite the contrary, which means that the continuation of rate hikes will only lead to damaging economic activity even further. That said, stock traders are still paying close attention to the Fed meeting next Wednesday and confirmation of a softer rate hike will likely lead to a short-term boost.
On the charts, the S&P 500 has finally broken above its 2022 descending trend line after 6 failed attempts. To be honest, the initial move looked a bit like a fakeout, especially during Wednesday’s trade, but the index managed to close above the trend line despite dipping below it throughout the session as it found key support at the 200-day SMA (3948) so the path of least resistance continues to be higher. Now that we’ve cleared this key resistance, Monday’s high (4039) looks like the most obvious level for new sellers to target so watch out for an attempted reversal around that area, but the coast won’t be clear until we clear the 4100 level, where we saw the bullish momentum halted back in December. I would also keep an eye out for the RSI divergence that is unfolding as the RSI has failed to mark a new high whilst the price has moved above last week’s highs, which suggests there may be some exhaustion in the rally.
S&P 500 daily chart
S&P 500 daily chart. Photo: capital.com. Source: tradingviewThe Nasdaq (US 100) has also been taking advantage of the bullish momentum but hasn’t been as successful in building higher highs this week. The index is still trapped below its 200-day SMA (11950) which is acting as a key area of resistance and is limiting the move higher. Until we clear this area and manage to get a daily close above it there isn’t much room for momentum to build higher. The good thing is that the Nasdaq has also managed to close above its 2022 descending trend line for 3 straight sessions since breaking above it on Monday so that is keeping buyers supported in the meantime. We have some big names in the tech industry reporting this week and next so there is likely to be some increased focus in the sector, with mixed readings so far, including a beat from Apple and a wobble from google’s parent company Alphabet.
Nasdaq 100 daily chart
Nasdaq 100 daily chart. Photo: capital.com. Source: tradingviewIn Europe, the DAX 40 (DE 40) continues to stand out as it manages to hold above the 15000 mark despite the bullish rally fizzling out over the last week. The 2021 key support range (15,000 - 14,813) is proving once again its value as it caps the losses when bearish momentum builds, meaning that the index is able to hold on to its recent gains for the time being. This has led to some sideways consolidation around 15100 as traders take a pause to assess the next move, which looks like it could be higher once again given the placement of the moving averages, but resistance around 15260 needs to be cleared in order to do so.
DAX 40 daily chart
DAX 40 daily chart. Photo: capital.com. Source: tradingviewIn Asia, the Hang Seng (HK 50) has been playing catch up after the Lunar new year holidays. The stock is up 15% in January buoyed by expectations of a strong economic rebound in China after the end of zero-covid policies, as well as hopes that major central banks are going to start putting an end to the liquidity drainage we’ve seen in 2022. Market sentiment is expected to remain high and so moving higher seems like the most likely scenario but buyers will need to clear resistance between 22568 and 22685 where we saw momentum halted back in June and April last year. Beyond this area, there seems to be a clear path towards 23,000 although consolidation and profit-taking cannot be ruled out.
Hang Seng daily chart
Hang Seng daily chart. Photo: capital.com. Source: tradingviewMarkets in this article
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