Market update: S&P 500 & Nasdaq rebound from key support; how much more upside?

Despite the escalation in geopolitical tensions, US indices have rebounded from key support after an apparent dovish shift by US Federal Reserve Bank officials. Dallas Fed president Lorie Logan and Fed vice chair Philip Jefferson highlighted the recent tightening in financial conditions because of the sharp rise in yields, lessening the need for further interest rate hikes.

Oversold conditions, light positioning, and positive seasonality raise the bar for a material downside in US equities ahead of the upcoming earnings season. At the same time, rising US real yields pose constraints on the upside.

S&P 500: Holds 200-DMA support

The S&P 500 is holding above quite strong converged support on the 200-day moving average; and the lower edge of a declining channel from August. This follows a fall below vital converged support, including the June low of 4325 and the lower edge of the Ichimoku cloud on the daily charts last month, which confirmed that the broader upward pressure has faded.

S&P 500 daily chart

S&P 500 technical analysis

Unless the index can clear, at minimum, the early-September high of 4542, the path of least resistance is broadly sideways at best. Ahead of 4542, the index needs to deal with the mid-August low of 4335 followed by the upper edge of the channel. On the downside, any break below the 200-day moving average could expose the downside initially toward the end-April low of 4050.

Zooming out from a multi-week perspective, the weakness since August reinforces the broader fatigue, as pointed out in previous updates.

S&P 500 weekly chart

Nasdaq 100: rebounds from key support

The Nasdaq 100 index’s rise on Monday above minor resistance at last week’s high of 14,900 has reduced immediate downside risks. This follows a rebound from crucial converged support: a horizontal trendline from June (at about 14,550-14,560), the lower edge of a slightly downward-sloping channel from July, and the mid-August low.

This support has been vital and a break below would trigger a head & shoulders pattern – the left shoulder is at the June high, the head is at the July high, and the right shoulder is at the early-September high. Still, for the bearish pattern to be negated, the index needs to clear significant hurdles at the early-September high of 15,618, not too far from the July high of 15,932.

From a big-picture perspective, the momentum on the monthly charts has been feeble compared with the huge rally since late 2022, raising the risk of a gradual weakening, similar to the gradual drift lower in gold since May.

Nasdaq 100 daily chart

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