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Analysis

US SPX 500 leads US Indices recovery

NZD

The long rally in the U.S. indices took a breather in September, but October has seen values rise again. When this happens, the question on many a trend trader’s lips is, ‘will the trend continue, or is this part of a bigger correction, or even the beginning of a trend reversal?’. For the US NDAQ 100, it could be too early to say, as prices are still just shy of the 6th September all-time high of 15,709.56, which could act as resistance to price until breached. In contrast, both the US 30 and US SPX 500 have recently breached their previous all-time highs, and therefore could be seen to be continuing in their uptrends for now. The monthly charts of both the US30 and US SPX 500 (US SPX 500 monthly chart shown below) show bullish candles for October, which have already engulfed the previous month’s trading. With only two days of trading left for this month, it is probable to assume that these candles could close near the highs. This could offer a potential boost to buyers for the beginning of November and potentially yield further buying opportunities for trend traders.

On the daily chart of the US SPX 500 below, price has put in a higher high and higher low following the month long correction during September. The 10, 20, 50 and 200 moving averages (MAs) are not aligned nor showing proper bullish geometry yet, however if price continues upwards, the MAs should follow suit, and trend trading opportunities to the upside may not be far behind. The MACD and RSI indicators are both bullishly converging with price, suggesting that there may be further momentum to the upside. On this timeframe, price could pull back down towards the buy zone – the area in and around the 10 and 20 EMAs. If this coincides with the horizontal level shown at 4,545, which corresponds to the previous highs in early September, this would be an additional technical reason to be looking out for a bounce in this area. Awaiting a small or medium sized bullish candle to form here may present a long trading opportunity.

Looking at the lower timeframes to find potential trading opportunities may benefit from seeing a higher reward to risk opportunity than trading on the daily timeframe. On the 4-hourly timeframe below, there is an uptrend in place, with higher highs and higher lows in price action and bullish moving average geometry. However, the MACD is showing bearish divergence with price, so it is possible that the trend could be weakening, and a further retracement may be due. Waiting for the retracement on the daily timeframe could be preferable on this occasion, or alternatively reducing risk if a trade opportunity arises here.


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