Dow Jones, Nasdaq forecast: Key levels for US indices

Over the past couple of months I have pointed out that there was a divergence between net-long exposure of asset managers and rising US indices. Yet what became more apparent recently was that the Dow Jones was the least popular of the three, as net-long exposure has since fallen to its least bullish level since early December. And traders could actually flip to net-short exposure against the Dow Jones in a few weeks of bears continue to close longs and initiate fresh shorts at a similar pace to the last few weeks.

This alone suggests that bears may want to limit their short positions for the Dow Jones. Also note that net-long exposure to S&P 500 futures has remained stable around its cycle highs in recent weeks, and bullish exposure actually increased to Nasdaq 100 futures last week. And that suggests bulls may have better luck with longs on the Nasdaq 100 or S& 500, given their ability to hold above support levels despite the recent bout of risk off.

Ultimately, until we see a material pickup of shorts bets against the Nasdaq 100 or S&P 500, any pullback for these indices could be limited compared to the Dow. But that is not to say they cannot fall further from here.

The combination of tensions from the Middle East alongside the growing realisation that the Fed not have to hike at all this year could take their toll on sentiment. And whilst nobody want to consider this right now, what if the Fed actually do have to hike rates again? I suspect we’d see some serious repricing, and not in the favour of risk assets such as US indices.

S&P 500, Nasdaq, Dow Jones weekly chart:

We know that US indices tend to track each other very closely the majority of the time, but a quick look at the weekly charts shows how they can also differ. Overall, bearish setups are preferred on the Dow Jones and bullish ones on the Nasdaq.

The S&P 500 fell close to 3% over the past two weeks yet remains above its 10-week EMA
The Nasdaq formed a small inside week and also remains above its 10-week EMA
The Dow Jones broke beneath its 10-week EMA last week, closed on its 20-day EMA and had the weakest rally above its old prior high

Dow Jones futures technical analysis (daily chart):

The Dow Jones failed to hold above the 40k level on two occasions, leaving a double top just above that key milestone level. The index has fallen in a relatively straight line, and the market is holding above 38k for now. RSI (2) reached its most oversold level this year on Friday, and with headlines that Israel is not looking to retaliate against Iran, then perhaps there is an opportunity for a bounce from current levels.

However, given the depth of the decline from the highs against the Nasdaq and S&P 500, I suspect any upside bounce could underperform. Therefore, bears may want to monitor any such bounce for evidence of a swing high in anticipation of an eventual break beneath 38k.

Nasdaq 100 futures technical analysis (4-hour chart):

Despite all that has been thrown at it, the Nasdaq remains defiant and not too far below its record highs. We’ve seen a slight rebound in Monday’s Asian trade, and prices seem a little hesitant to break above the 18,250 – 18,300 level, near the most traded price by volume during its sideways consolidation.

As sentiment is a little fragile, I would prefer to see prices pull back towards last weeks lows before seeking longs. There is clearly support above 18,000, so any low-volatility towards it could be tempting for bulls to seek a bounce towards 18,250 – 18,300. And should US data remain firm and geopolitical tensions recede, perhaps it can break above 18,400. But should war in the Middle East escalate, a break beneath 18,000 seems likely (but for that, I’d prefer to see bearish setups on the Dow Jones).

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.