S&P 500 & Nasdaq Analysis and Trends

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Equity Bulls Notch Another Positive Week But Are Probably Not Enthralled By How Thu And Fri Traded
By: Hedgopia | May 21, 2024

Last week brought another positive week for equity bulls, with the major US equity indices rallying for a fourth consecutive week. Amidst this, how the indices traded the last two sessions should give the bears some hope.



Equity bulls used last Wednesday’s softer-than-expected consumer price index for April to break out to new high. The S&P 500 peaked at 5265 on March 28th, having failed to break out of 5260s in three of seven sessions around that high. This quickly led to a 5.9-percent drop through April 19th. From that low, the large cap has now rallied for four straight weeks.

On Wednesday, the index gapped up to convincingly break out of 5260s. Come Thursday, it tagged 5325 intraday to close at 5297; bulls are probably not happy with the mini reversal in a session in which a new record was notched. This was followed by Friday’s dragonfly doji (Chart 1). The action in the last two sessions should embolden the bears, but the candles need confirmation this week.

Should the S&P 500, which remains way overbought on the daily, come under pressure, how a bull-bear duel evolves around 5260s is key.



There is a similar pattern in play on the Nasdaq 100. The index peaked at 18465 on March 21st. Before that, on the 1st that month, it hit 18333 and retreated. After that, 18300s was hit several more times, with the last one occurring on April 11th, before the index fell hard. By April 19th, the Nasdaq 100 declined 8.1 percent from the March high and then went the other way.

Last Thursday, a new intraday high of 18670 was recorded. This was preceded by Wednesday’s break out of 18300s post-CPI; in fact, the intraday low of 18359 was bought hand over fist, ending the session at 18597 (Chart 2). From tech bulls’ perspective, this is all well and good – except that they are probably not too excited how Thursday and Friday behaved.

On Thursday, bulls were unable to latch on to the intraday high, ending the session at 18558, resulting in a shooting star. Come Friday, a potentially bearish hanging man was formed. These candles need confirmation before the bears can say ‘gotcha’ and this should be evident this week.



In the small-cap arena, bulls once again were stopped at 2100, which is increasingly proving significant. In the last three sessions last week, the Russell 2000 pushed through 2100 in each session but only to close lower by the end of week. It closed up 1.7 percent for the week to 2096. The index has struggled to clear 2100 for over two months (Chart 3).

After peaking in November 2021 at 2459, the Russell 2000 bottomed at 1641 in June 2022; this level was subsequently tested in October of both 2022 and 2023. A 61.8-percent Fibonacci retracement of that drop lies at 2144. Further, the index lost 2100 in January 2022 and has since struggled at that price point. Plus, the index was rangebound between 1700 and 1900 going back to January 2022; 2100 in this regard represents a measured-move price target post-breakout at 1900 last December.

The daily is overbought, and last week’s failure to reclaim 2100 raises the odds of a trip back to 2000; worse, breakout retest at 1900 can occur.

The bottom line for equities overall is that the momentum ball remains with the bulls, but the action on Thursday and Friday last week is raising a yellow flag. If they do not put their foot down early this week, momentum – at least near-term – can go the bears’ way.

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