More Gains on the Cards?

Dow, Dow Jones Industrial Average, S&P 500, SPX, NASDAQ 100, NDX – Outlook:

US equity indices jumped on Monday after reassurance from US lawmakers that the country won’t default on its debt obligations, boosting hopes of a deal to raise the debt ceiling. The odds of further gains in the indices are high, technical charts suggest.

“The leaders (of Congress) have all agreed: We will not default. Every leader has said that,” US President Joe Biden said on Wednesday. Market expectations were low going into the debt ceiling talks, but the consensus to avoid a debt default is a positive sign.

Also, the positive quarterly earnings season, the stabilization in US regional shares, and hopes that the US Federal Reserve has concluded its rate hiking cycle are aiding sentiment. With market positioning still light (bearish sentiment among global investment managers has reached extreme levels while retail investors’ net purchases of single stocks are around multi-month lows), a positive outcome on the debt talks could push equities higher. For more discussion see “S&P 500, Nasdaq Week Ahead: Resilience or a Lull Before the Storm?”, published May 15.

Dow Jones Industrial Average Daily Chart

Chart Created by Manish Jaradi Using Tradingview

Dow Jones Industrial Average: Rebounds from key support

On technical charts, the Dow Jones Industrial Average has rebounded from a fairly strong converged cushion: the lower edge of a pitchfork channel from mid-2022 and the 200-day moving average. The hold above the support raises the prospect of a further advance. While still unfolding, a rise toward the horizontal trendline from August at about 34280 and a subsequent break above could trigger a reverse head & shoulders pattern (the left shoulder at the December low, the head at the March low, the right shoulder could be the May low). If the bullish pattern does get formed and triggered, a move toward 37000 could be on the cards.

S&P 500 Daily Chart

Chart Created by Manish Jaradi Using Tradingview

S&P 500: Gears up for an advance

The S&P 500 index’s rebound from the end-April low of 4050 has raised the possibility of a minor double bottom (the end-April and early-May lows). Any break above the February high of 4195 would solidify the seven-month-long uptrend and could pave the way toward the August high of 4325. As first highlighted in January, the S&P 500 index’s broader trend remains bullish – see “S&P 500 and Nasdaq 100 Index Technical Outlook: Turning Bullish”, published January 28.

Nasdaq 100 Daily Chart

Chart Created by Manish Jaradi Using Tradingview

On the downside, the end-April low of 4050 remains a key floor. Any break below the support would confirm that the immediate upward pressure had faded somewhat, pointing to an extended sideway range.

Nasdaq 100: Surges toward the August high

The Nasdaq 100 index is now a whisker away from the August high of 13720 – a possibility highlighted in mid-April. See “Nasdaq 100 and S&P 500 to Retest August Highs – A Question of When Not If?”, published April 14.

Nasdaq 100 Weekly Chart

Chart Created by Manish Jaradi Using Tradingview

This follows a break last week above the early-April high of 13205, which has now turned into initial support. The short-term upward pressure is unlikely to fade while the index holds above 13205.

— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish