Oct 27, 2022
VOT Research Desk

Market Insights, Considerations & Analytics

S&P 500 to succeed but hoping for a fleeting return

With a little extra resilience, the Dow 200-day MA will not be far away from the Nasdaq 100, which is currently lagging.

Stocks have continued to rise in line with expectations heading into this week, but we may experience a pullback before another rise. With the help of a reversal candle, the S&P Index erased a swing low that it had established at the beginning of September.

This, in addition to the fact that the Nasdaq 100 continues to lag, suggests that the market may soon fall. It will be critical that the NDX holds up moderately well, and in a perfect world see it outflank soon, regardless of whether that implies auctioning off not exactly the more extensive market before really prompting the top-side.

The market may face additional difficulties if the NDX and its core holdings of market favorites are unable to accelerate. But before we get to that, we need to see how this pullback plays out.

We had previously identified an inverse head-and-shoulders when looking at the S&P’s technical, and so far, things have gone well. The neckline was broken shortly after the trend line from August. Well keep an eye out to see if a pullback can hold around 3806 or close to the neckline near 3725 while remaining relatively shallow. A hold in that region, which currently resembles more the lower portion, could present potential longs with yet another opportunity.

The bear market rally trade may need to be reconsidered if stocks begin to fall and the NDX returns to its lows long before the S&P and Dow. All of this is currently regarded as a rebound from a prolonged bear market

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The Nasdaq 100 must maintain its position quickly, and it may do so by exhibiting a broader inverse head-and-shoulders pattern. When we first looked at it, we thought the right shoulder would be the low around 10962, but a larger, more symmetrical pattern could emerge. Despite its laggard status, the NDX has broken out of the channel it was stuck in since August, which is good news so far. This doesn’t change a pattern in itself however makes a difference.

On this pullback, tech stocks and the market as a whole could benefit from another significant leg higher if a higher-low (right shoulder) can form. It is thought that the region just below 11k is very important for this outlook.

S & P 500 Daily Chart

This rally has been led by the Dow Jones, which is not a good thing. If the overall market is to continue moving higher, the NDX will need to step in quickly. Having said that, a pullback could reach the 200-day MA, which is not too far away. The risk is skewed toward a pullback because the index has been extended to make it clear, so it may become the laggard if we get another leg higher.