Analys från DailyFX
S&P 500: Glaring Intermarket Divergence, Watch the Nasdaq 100
What’s inside:
- Glaring divergence among major US indices
- Nasdaq 100 carving out a head-and-shoulders top, but no trigger yet as support has yet to break
- Will the SP 500 follow the Dow and Russell 2000 or the Nasdaq
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In recent sessions, we have seen significant divergence among the US indices. The Dow and Russell 2000 (small-caps) have risen to record heights, while the Nasdaq 100 has been trading back towards its worst levels of the month. The SP 500 is holding in between.
The divergence is glaring and providing mixed signaling. Generally speaking, negative divergence among indices during an up-move is not a sign of a healthy market. But at the end of the day, though, price action in the SP 500 is generally what matters the most given the index’s broad representation of large-cap stocks. However, divergence does beg the question: Will the SP follow the way of the Dow and Russell and play catchup, or is the Nasdaq flashing a warning sign of things to come?
Intermarket divergence
Created with Tradingview
Let’s take a look at the Nasdaq 100 since it is providing the clearest technical formation. The 100 is in the process of carving out a head-and-shoulders pattern, and should it trigger its neckline it is likely the Dow and Russell will quickly reverse and the SP 500 will rollover as well. Conversely, the neckline could hold, as it is still considered support until broken, and the HS formation will never come to fruition. If this is the case, then we may very well see a rotation into the tech-heavy index and the SP. It’s all dependent on how things play out with the neckline.
Nasdaq 100: Daily
Created with Tradingview
SP 500 levels and lines…
SP 500: Daily
Created with Tradingview
All-in-all, we will want to keep an eye on the Nasdaq as it’s quickly closing in on the danger zone. How it handles neckline support will likely prove a critical sign of which way the next broad market move wants to unfold. We’ll update shortly as market develops unfold. Join me tomorrow at 9 GMT for a look at short-term charts and potential trade set-ups.
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—Written by Paul Robinson, Market Analyst
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What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
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EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
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Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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