The S&P 500 Index Trend
In the trading week just completed, the S&P 500 Index has recaptured the territory just above the trendline linking the 10.13.22 and 3.13.23 lows. The index spent the majority of the preceding week below this line, but the brief pullback seems to have ended. The pullback during the preceding week amounted to only a 1.7% dip below the trendline, a level well short of the traditional 3% rule of thumb move needed to justify a true break in the prevailing trend. Figures 1 and 2 show the week's S&P 500 Index price action around the shorter duration light green trendline which started only on 10.13.22. A longer term light yellow trendline offers some comforting downside support; this trendline was established in March 2020. The primary trendline is shown below both of these trendlines; we have labeled this primary trendline "Jawbreaker". Recall primary trendlines are some of the longest identifiable trends on stock charts. This blog post includes an explanation of the various durations of trend.
FIGURE 1 - A daily chart of the S&P 500 Index. Note the price action returning to the area above the short term trendline designated in green.
FIGURE 2 - A daily chart of the S&P 500 Index. This view is zoomed in on the latest price action. Note the price action returning to the area above the short term trendline designated in green.
The Dow Jones Industrial Average Index Trend
A new trendline can be drawn on the Dow Jones Industrial Average Index daily chart. Figure 3 shows the new trendline drawn in light yellow. This trend only starts at the 10.13.22 low; it has only been touched twice with the most recent point being last week. At any rate, the Dow Jones Industrial Average Index price action seems to have rebounded from its most recent pullback. Market participants should stay vigilant; markets do not have a clear pathway higher from both a technical and fundamental viewpoint. Figure 3 shows the clear rebound from the short term uptrend line, but the move higher is not supported by robust technical data and there are fundamental concerns for the U.S. economy. They are not shown in the Figure 3 chart, but the 50, 100, and 200 day simple moving averages are all above the week's price action. Furthermore, the uptrend line offering the recent support to price action is anything but tested; it has only been touched twice. Fundamentally, U.S. economic data released on Thursday showed sticky inflation with the YoY inflation rate remaining at 3.7% and the MoM core inflation rate remaining at 0.3%. Friday's Michigan Consumer Sentiment data confirmed the fourth straight month of sharp decline. The October 2023 measure is 63; the July measure was 71.6.
FIGURE 3 - A daily chart of the Dow Jones Industrial Average Index. Note the new trendline drawn in light yellow connecting annual October lows.
The Nasdaq Composite Index Trend
Finally, Nasdaq Composite Index daily chart is similar to the daily DJI; a new short and untested uptrend line can be drawn. Figure 4 shows the new trendline. Nasdaq has shown us a series of three lower highs since July 2023, and long term support trendlines do not exist until the primary trendline at roughly 11,400.
FIGURE 4 - a daily chart of the Nasdaq Composite Index. Note a new trendline drawn in green connecting the December 2022 and September 2023 lows.
Conclusion
Fragile uptrends are in place in major U.S. financial market indexes. We will watch how the technical data falls as the week ahead brings retail sales and building permit data on Tuesday and Wednesday respectively. Thursday October 19 brings the very important Fed Chair Speech. Vigilance now more than ever is key.
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