S&P 500, Nasdaq Forecast: Fed Testimony Gets Markets Back Onside

US Stocks Forecast: Bearish

S&P 500 extends move lower after Powell testimony, where to from here?
Nasdaq 100 heads lower after textbook tough and run while heavily overbought
Risk events ahead: ECB Forum on Central Banking, US PCE
The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

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S&P 500 turns lower after Powell Testimony, Where to from Here?

The S&P 500 turned lower in the lead up to Powell’s testimony before congress and largely built on that momentum heading into the weekend. The pullback has been in the offing for a while now but a complete lack of concern, expressed through the volatility index, suggested that the bullish momentum would encounter little resistance.

However, it was the 4500 psychological level that proved to be the line in the sand that markets weren’t prepared to cross. Adding to the resistance was the level corresponding to the April 2022 swing high of 4510.

Things look a whole lot different now, with the MACD on the cusp of revealing a bearish crossover and the RSI dipping back into the normal range. The question ahead of next week is whether the pullback continues to 4325 and possibly the 61.8% Fibonacci retracement of the major 2022 sell-off around 4310. If Friday’s price action is anything to go by, the bearish scenario would appear to be the base case. Next Wednesday the heads of the BoE, ECB and Fed take part in the ECB’s panel discussion during the central bankers conference in Sintra Portugal so comments made there are likely to add volatility. On Friday US PCE has the potential to move markets, where a stubborn core PCE print appears likely to see US equities head lower into the weekend.

S&P 500 E-Mini Futures (ES1!) Daily Chart

Source: TradingView, prepared by Richard Snow

of clients are net long. of clients are net short.

Change in	Longs	Shorts	OI
Daily	-16%	6%	-2%
Weekly	-10%	2%	-2%

Nasdaq 100 Heads Lower after Textbook Touch and Run

The tech heavy Nasdaq 100 Index hinted at a reversal ahead of our last weekly forecast, rising right up to the upper bound of the ascending pitchfork before retreating. Once more, it was the complete lack of downside protection – witnessed by a VIX reading at basement levels – that suggested the bull run could extend its stay within overbought territory.

The confluence zone of resistance (78.6 Fib of the 2022 sell-off, 15,260 level and the upper side of the pitchfork) proved too much to overcome. Prices now rest above the upper parallel, where an extended pullback next week could see a move towards the midline. Levels of support appear around 14,367 – which happens to the 61.8% Fib retracement of the same major sell-off in 2022. Despite the move lower, the Nasdaq is still in overbought territory and has a fair way to go still.