Dow, S&P 500 and Nasdaq 100 Forecasts For the Week Ahead

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Dow Jones, S&P 500, Nasdaq 100 Technical Forecast: Neutral

  • The Dow, S&P 500 and Nasdaq 100 all posted net losses in the week; but considering the prevailing factors, the fact that they did not fall further can be counted as a victory for bulls.
  • While inflation and Powell have very much been the focus this week, next week sees the focus shift to U.S. spending with some big caps reporting.
  • Despite another massive inflation press, Powell spent two days on Capitol Hill explaining why the Fed maintains a rough policy outlook. This helped decrease Treasury yields, with the 10-year decline of 1.3%.

Well, it was a great week of drivers and once again inflation surprised to the top. U.S. IPK data was released on Tuesday according to the striking melody of 5.4% and shares barely shrugged. In fact, just a few hours after that release – the S&P 500 set yet another fresh all-time high. This may have been caused by what was on the economic calendar in the next two days, and that was an appearance by FOMC President Jerome Powell as part of Humphrey Hawkins ’two-year annual Fed testimony.

Then on Thursday after the closing of U.S. markets, an interview with U.S. Treasury Secretary Janet Yellen hit the waves, in which she said she sees “a few more months of rapid inflation” before price pressures ease. U.S. stock markets opened on Friday to a heavier bid, with prices continuing to retreat after the early weekly gains, and that selling pressure continued throughout the session.

But, to put this in perspective, the past two months have been quite extravagant, even before 2020 definitions of the word. The Nasdaq 100 jumped up 15% from mid-May, and the big driver was the FOMC’s June rate hike, in which the bank declined slightly. But that meeting took place a month ago and focus began shifting to risky events later this summer, such as Jackson Hole or the September decision on the FOMC, then the FOMC will offer updated projections and forecasts.

And that highlights one of President Powell’s comments this week, drawn from his prepared remarks ahead of his Wednesday appearance, which seemed to nullify most of the other major items: “Conditions in the job market continue to improve, but still exist. a long way. Powell noted that the Fed’s goal of “great further progress” toward full employment and price stability remains “far off.”

This is the same rationale that has driven markets over the past two months and, even despite another surprising inflationary press, with the Fed digging in its heels, little seems to have changed yet on that front.

In the high Flying Nasdaq 100, prices began to pick up a bullish trend line that can be pulled from the May lows. The 15k level has proved hard to break and prices may need a deeper pullback to wash away recent longings before buyers can finally break through. There is a possible maximum support around 14,540, but if that can’t hold, it’s the 14k level that stands as a possible support point. Between the two, the 38.2% retreat from the recent advance stands at 14,216, and this becomes an additional point of potential support.

Nasdaq 100 (NQ1) Daily Price Chart

nasdaq 100

Diagram prepared by James Stanley; Nasdaq 100 at Tradingview

Dow Jones: The Return of Value?

While the Nasdaq 100 has risen to 15% from that May low, creating a series of recent all-time highs along the way, the Dow has yet to pull off that previous May swing.

But last week the Dow returned when prices jumped to that previous high swing, just below the 35k psychological level, and this gives the appearance of a bullish explosive potential ahead of next week. So, in a strange twist, the Dow may stand in the most bullish way currently among the three major U.S. stock indices.

To learn more about psychological levels, join us DailyFX Education

Dow Jones Daily Price List

dow jones

Diagram prepared by James Stanley; Dow Jones at Tradingview

S&P 500 crosses the Wedge

The previous week saw some excitement around the S&P 500, with the index retreating on Thursday to a trend line. But the move on Friday after that sale was pronounced a bullish swallowing candelabra that pushed price to another trend line, helping to mark resistance on a rising wedge.

That bullish engulfing candlestick led to another move of strength on Monday, with prices fixing that fresh all-time high, with another appearance in U.S. markets on Tuesday a few hours after that 5.4% IPI print.

While rising wedge formations will often approach with the goal of bearish reversals, given the length and strength of the movement, there is still no bearish trigger nearby. For that scenario to begin, traders would probably want to look for a test below short-term support around 4280, followed by a test of longer-term support around 4127. That could start a reversal frame.

To learn more about the rising wedge, control DailyFX Education

S&P 500 Daily Price Chart

sp500

Diagram prepared by James Stanley; S&P 500 at Tradingview

— Written by James Stanley, Senior Strategist by DailyFX.com

Contact and follow James on Twitter: @JStanleyFX



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