S&P 500, Nasdaq, and Dow Rise on Dovish Powell in US Equities Update

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EnclaveFX Ltd
Dec 02, 2022
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Analysis of US Equities (S&P 500, NASDAQ 100, and Dow Jones)

Powell gives the "all clear" for equities as the global mood improves

  • As it moves up from a lower level, the tech-heavy Nasdaq outperforms the S&P and Dow.
  • S&P 500 returns upward from the area of support as the longer-term trendline is within grasp.
  • The Dow Jones has proven to be the most resilient of the indices and has already started to rise.

POWELL GIVES THE "GREEN LIGHT" TO SHARES AS WORLDWIDE SENTIMENT IMPROVES

Given the rising number of dovish voices within the Fed, Fed Chair Jerome Powell's remarks yesterday evening were as dovish as he could conjure. If you recall the minutes from the Fed meeting in November, they stated that "a large majority of participants thought that a slowing in the pace of increase would likely soon be appropriate." Powell's speech last night, in which he cautioned against the risk of overtightening and hinted at a softer 50 bps hike in December, was made possible because of this.

The comment caused the US equities markets, which are still very open to even the tiniest bit of good news, to rise. The S&P 500 and Dow Jones increased 3% and 2.18%, respectively, but the Nasdaq, heavily weighted in technology, recently lagged.

The easing of lockdown restrictions in China following large-scale protests is another factor that favors more excellent equity prices. Given the unpredictability and an unprecedented number of new Covid cases that have engulfed the country this winter, Asian equities continue to be pessimistic. The most recent figures, which hover around 71,310, have surpassed April's previous high of 29,520 new covid cases.

Nasdaq 100

The Nasdaq 100 outperformed the other two US indices yesterday despite lagging them. Rising interest rates are a hurdle for IT growth firms, which sometimes struggle to generate steady earnings. The 12,250 level, significant in 2020, 2021, and 2022, presents obstacles to upward movement. The subsequent level of resistance is 12,950.

At 11.540, where price action had gathered before the move higher, a reversal following the most recent increase may be probable. The Nasdaq may be in an excellent position because it has barely moved from its bottom and, if positive momentum persists, may still have some room to run.

S&P 500

The S&P 500 has performed far better than the Nasdaq and displayed a clean upward bounce off the support zone of 3050. The surge now brings the long-term declining trendline of support into play and appears to be the closest region of resistance.

It is still too early to declare a bullish reversal, but the trendline has historically been very strong, so a break above it with enough momentum strengthens the case. The 2020–2021 movement's 23.6% Fib retracement marks the next level of resistance (4180).

Support may be found in the area of 3950, then the rising (dotted) trendline support, 3860, and finally, the congruent Fib levels at about 3800.

DOW JONES

As was already established, the Dow Jones has been the best-performing of the three US indices as it has technically exited the bear market after recovering more than 20% from its October low. The positive momentum continues if the previous high of 34,280 can be held above.

The daily data analysis reveals what looks to be a morning star candlestick pattern, although it does so within an uptrend rather than the more typical downturn. However, the higher low shows a bullish momentum, driving market action upward. The MACD, which sharply reversed in August, and the RSI's close to "overbought" circumstances, which suggest that a pullback may soon be justified given the market state, are two things to keep in mind on the downside.

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