US equity indices poised for higher break or correction amid Fed speakers, housing data

US equity markets closed higher overnight as measures of rate and equity volatility continue to compress ahead of key earnings reports, a host of Fed Speakers and updates on manufacturing and the housing market.

Of course, the latter, which was at the epicentre of the banking crisis in 2008, has played little part in the 2023 episode.

However, if a tightening of banking lending conditions is the main result of the events in March, then some spillover will likely be felt in the housing market in the months ahead.

Housing data

Tuesday, April 18

• Housing starts: the market is looking for a fall of 3.5% in March to 1400k after a rise of 9.8% in February
• Building permits: the market is looking for a fall of 6.5% in March to 1450k, after a rise of 15.8% in February

Friday, April 21

• Existing home sales: the market is looking for a fall of 1.8% in March to 4.5 million after a 14.5% increase in February.

US rate market

After a second successive session of hotter-than-expected economic data, the US rates market is now 86% priced for a 25bp rate hike at the May FOMC meeting.

There are now less than 60bp of Fed rate cuts priced into the end of the year.

This week, we will watch two Fed Speakers who seem most likely to move market pricing.

Chicago President Goolsbee is considered a leading dove and noted last week in an interview with CNBC that the Committee has raised rates a lot and “it takes time to work its way through the system.”

New York Fed President Williams also spoke last week and noted that core services ex-housing inflation “hasn’t budged yet” and that the Fed still has work to do “to get inflation back to 2%.”

S&P 500 technical analysis

The S&P 500 continues to eye the top of its five-month 3800-4200 range. While we can’t rule out a brief false break higher, we see the 4200 area as the right area to lighten exposure looking for a move towards 4000 before a retest of the bottom of the range at 3800 in the months ahead.

Aware that should the S&P 500 see a sustained break above 4200 (three daily closes above 4200), it would likely extend its rally to the August 4327 high with scope towards 4500.

S&P 500 daily chart

Nasdaq technical analysis

After a rampaging run higher during March, the Nasdaq has spent the last two weeks in a holding pattern, undecided whether to extend its rally higher or to pullback.

To that effect, if the Nasdaq saw a break of support 12900/12800, it would likely signal a deeper pullback towards 12,400 is underway. Aware that should the Nasdaq hold support at 12900/12800 and break above the recent 13,348 high, it would set up a retest of the August 13,740 high.

Nasdaq daily chart

Dow Jones technical analysis

After four straight weeks of gains, the Dow Jones is testing downtrend resistance at 34,000 (from the bull market 36,952 high) without any signs as yet of rejection or acceptance.

Should the Dow Jones make a sustained break above 34,000 (three daily closes above 34,000), it opens a test of the 34,712 high from December 2022 with a scope to the 35,492 high from April 2022.

However, until this occurs, there remains a good chance of a pullback towards the 200-day moving average at 32,500.

Dow Jones daily chart