As the great equities rally that has thus far defined 2013 continues so far fairly unscathed through the autmnn, let’s have a look at where the following U.S. equity indices stand: S&P 500, Dow Jones Industrial Average and Nasdaq 100.
Before looking at the charts however, let me point out that while equities continue to rally, both the dollar index as well as bond yields have begun to decline sharply since early September. This trend of a lower dollar and lower bond yields has particularly accelerated since the September FOMC meeting ‘no-taper’ vote, which in essence speaks as a leading indicator of lower economic growth and growth expectations.
Clearly this is not what we want to see at this stage in the economic cycle, yet here we are and equities continue to skip along the path unaware of the big bad wolf luring in the trees.
With this part of the current market structure in mind, let us now flip through the following three charts with an open mind to all scenarios while mapping out a few reference levels to focus around.
First up, the benchmark S&P 500 index. While flat for the week, the index is essentially consolidating below its upper trend line resistance connecting the high points of 2013. A push out of this consolidation period to the upside could easily push the index toward 1780 and 1800.
At this stage in the rally, however, it is wise to take partial profits and use trailing stops. On the downside, a first support level is around 1735 to 1740, followed by the area around 1700 — give or take 5 points.
The Nasdaq 100, as represented by the PowerShares QQQ ETF (QQQ), last week reached 61.8% of the entire sell-off from its top in the year 2000 down to its lows in 2002. This area most likely will offer at least some resistance … but given the thirteen years that it took for the index to get back up here, we must allow for a margin of error for overshooting in the immediate term.
An overshooting immediate term could well take the fund up to $85, while first support is at $82.50, followed by the $80 area. A break below $80 would call for a better correction toward the mid $70s.
The Dow Jones Industrial Average, while also putting up great numbers this year hasn’t hit a new high since mid-September, i.e. lagging the other two indices above. A logical upside target here is near 15,800 at the upper end of its multi-month trading range. The first level of support is around 15,150 — followed by around 14,800.
Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the “Essence of Swing Trading” eBook by clicking here. At the time of publication, Berger had no positions in the securities mentioned.