S&P 500 and Nasdaq outlook: a minor rebound?

S&P 500 technical outlook – neutral

It is still too early to conclude that the worst is over, but developments on shorter-term charts suggest US equities could be preparing for a minor rebound.

The S&P 500 index is testing key resistance at the early-October high of 3807, coinciding with the 89-period moving average on the 240-minute charts. This follows a failed attempt earlier this month to break below support at the September 30 low of 3584.

If history is any guide, a break above the resistance area could lead to a rebound in the interim (see chart) – failed attempts in recent months to break below key pivot levels followed by the breaks above the 89-period moving average led to a short-term rebound.

S&P 500 four-hour chart

Equities have been supported recently by a positive start to the US earnings season, oversold conditions, still-high level of pessimism and extremely light market positioning. If there any signs that the US Federal Reserve is softening its tone at next week’s Federal Open Market Committee (FOMC) meeting, it could be a solid catalyst for at least an interim turnaround in stocks.

A decisive break above resistance at 3807 could open way initially towards 3915 (the 50% retracement of the August-October fall), followed by the mid-September high of 4119. Strong resistance is at the August high of 4325 – the S&P 500 index would need to break this resistance for medium-term downward pressure to fade.

Nasdaq composite technical outlook – neutral

The Nasdaq Composite Index has risen above immediate resistance on the 89-hour moving average and is testing resistance on the 200-hour moving average ahead of crucial resistance at the early-October high of 11320. In the recent past, breaks above converged resistance areas including the 200-hour moving average, a price pivot, and the 89-hour moving average have been followed by a short-term rebound.

Nasdaq composite hourly chart

To be sure, developments occurring on intraday charts would probably have relevance for a few days. Resistance breaks on shorter-term charts need to be followed by breaks on higher timeframe charts for any rebound to be sustained and meaningful.

In this regard, the August high of 13181 is vital resistance – the Nasdaq Composite Index needs to clear this resistance for the medium-term downtrend to change. On the downside, the mid-October low of 10088 is fairly strong support.

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