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Where next for the Nasdaq and Dow as US markets await Tuesday's CPI print?

Tuesday's reaction to the US CPI reading for January could shape the performance of major US indices this week.

The tone for this week in equity indices will probably be set by the reaction to the US consumer price index (CPI) announcement, due out at 8:30am (Eastern Time) on Tuesday. We expect a bullish response to the number, but in this article we outline bullish and bearish roadmaps for the Nasdaq 100 and the Dow Jones Industrial Average (the Dow 30) spanning the next few days.

The two indices are not in quite the same place in terms of pattern formation. The Nasdaq appears to offer the best conditions for upward travel if the market responds positively to the CPI reading for January. On the other hand, the Dow appears poised to travel farthest downward on a negative reaction to the news.

Nasdaq 100 up 15% YTD

On the below intraday Nasdaq chart with three candles per day, the move up from the 29 December 'b' wave low would have better form with a new high, as shown by the grey path lines. The most likely upward target in that scenario waits at 13,214, although 12,938 could also act to cap the move. There are additional resistance zones ranging from 13,395 to 13,483 and 13,757 to 13,854.

If the market instead falls in reaction to the inflation news, it would suggest that the pattern we have labelled as wave [b] finished last week. In that case, the main supports to watch in the near term are 12,054 and 11,926. That region could produce a modest bounce to form a lower high going into next week, as shown by the red path.

On the other hand, a failure of 11,926 as support would make it possible to test the next marked levels at 11,764, 11,428 or 11,295. 

Source: Trading on the Mark

Dow subdued

The Dow 30 has been considerably less enthusiastic than the Nasdaq in recent weeks, having been unable to make a higher high in relation to 13 December. That has preserved the viability of the downward impulsive count depicted with wave labels (i) and (ii).

A positive reaction to the CPI could have the Dow try to reach a 1x1 extension target at 34,660, where the distance of wave 'a' would equal that of wave 'c'. That area represents the practical limit for the wave (ii) idea. If price were to venture higher to test resistance at 34,898 or 35,510, it would require us to revise the count.

Source: Trading on the Mark

If the reaction to the CPI is negative, the main supports in that event wait at 32,909 and 32,543, with stretch targets at the zone from 32,122 to 32,078, 31,543, and the zone from 30,805 to 30,735.

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