S&P 500 and Nasdaq 100 – Fundamental Forecasts and Analysis
Recommended by Nick Cawley
The Fundamentals of Trend Trading
US equity markets continue to defy market logic and push back toward levels last seen a few weeks ago. With the Fed’s ‘a bit higher for a bit longer’ rate narrative being priced into the market, equities should, in a traditional sense at least, be testing support levels, not resistance levels. While the trend remains your friend, it may be better from a risk/reward basis for traders to demand better prices before entering the market.
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The S&P 500 is currently nudging higher and is within 50 points of printing a new multi-month high. This grind higher, supported by the short-dated 20-day moving average, continues to confound traders as US bond yields probe new multi-week highs. Higher US bond yields strengthen the US dollar and press down on equity prices. The technical outlook remains positive with the recent golden cross (50-/200-day crossover) boosting sentiment, while a medium-term series of higher lows confirms that traders are continuing to buy dips. There is a cluster of recent highs between 4180 and 4208 which may cap, or at least slow, the current move, while the first level of support is seen around 4100.
S&P 500 Futures (ES1!) Price Chart – February 16, 2023
S&P Retail Sentiment Remains Fixed
of clients are net long.
of clients are net short.
Retail trade data show 37.78% of traders are net-long with the ratio of traders short to long at 1.65 to 1.The number of traders net-long is 0.70% lower than yesterday and 12.05% lower from last week, while the number of traders net-short is 0.87% lower than yesterday and 10.09% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests US 500 prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed US 500 trading bias.
The move higher in the Nasdaq is even more baffling as higher rates weigh heavily on the tech sector as their cost of borrowing, to keep growth ongoing, increases. It may be that the market is already looking past the current levels of borrowing and factoring in lower borrowing costs later in the year. The technical picture for the Nasdaq again looks positive despite a mixed set of moving averages. While a 50-/200-day golden cross has yet to be formed, the two moving averages are coming together and may crossover in the coming weeks. A bullish flag formation on the daily chart is currently playing out and a confirmed break higher would add to the positive sentiment, pushing the market higher.
Nasdaq 100 Futures (NQ1!) Daily Price Chart – February 16, 2023
What is your view on the S&P 500 and the Nasdaq 100 – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.