Can the S&P 500 and the Nasdaq build on their break higher?

US equity markets ripped higher overnight on hopes of a slower pace of Fed tightening, easing inflation and ahead of key earnings reports.

The tech-heavy Nasdaq led the charge higher for its best two-day run since November.

• Tesla surged 7.74%, taking its two-day rally to over 13%
• NVIDIA added 7.59%
• Netflix added 4.36%
• Meta added 2.8%.

In contrast to January 2022, when the Nasdaq fell 8.52% before falling a further 24%, this January, the Nasdaq is now +8.53% for the month - an interesting statistic for those who subscribe to the idea that January sets the tone for the remainder of the year.

For those who take a more bearish view of the world, there remains a lot to ponder. Despite the Fed’s rhetoric that it will raise rates by 75bp above 5% and keep rates on hold for an extended period, the market is not convinced.

An expected slowdown in growth during the second half of this year has the interest rate market pricing 55bp of rate hikes before the Fed turns in the second half of this year and cuts rates by 210 bp, taking the Fed Funds rate back to 2.75% by December 2024.

For those wondering the reason why the Fed would cut rates by 210bp, it would likely be in response to a recession which equity markets are not priced for.

What do the charts say?

Technically the S&P 500 (and the Nasdaq) have closed above the downtrend lines drawn from their January 2022 highs.

Presuming the break higher in the S&P500 sustained in the coming sessions, it opens the way for the rally to extend towards 4180 (Dec spike high) and then 4327 (Aug high).

The first cause for concern that the overnight break higher had failed would be a sustained close back below the 200-day moving average at 3970.

S&P 500 daily chart

Nasdaq

For the Nasdaq, there is more reason to be suspicious of the overnight break higher as it has yet the clear the 200-day moving average at 12,072.

If it was to see a sustained break above the downtrend and the 200-day moving average, the upside target would be the December spike higher at 12,239, followed by the August 13,740 high.

Nasdaq daily chart

Take your position on over 13,000 local and international shares via CFDs or share trading – and trade it all seamlessly from the one account. Learn more about share CFDs or shares trading with us, or open an account to get started today.