The Dow Jones Industrial Average fell for the second consecutive week and continues to remain under pressure. The index was down about 1.7 per cent for the week. The S&P 500 managed to recover almost all the loss from its low and closed the week marginally lower by 0.08 per cent. The NASDAQ Composite index on the other hand ended the week in green. It closed 0.72 per cent higher for the week.
Broadly on the charts there is a divergence again. The Dow Jones looks weak and can fall more. The S&P 500 index is managing to hold well above its support. That keeps the chances alive for seeing a fresh leg of rise. NASDAQ Composite looks relatively better among the three and can rise more from here.
Here is an analysis:
Dow Jones (51,688.16)
As expected, the Dow Jones has declined breaking below its key support level of 52,200. Indeed, it has declined well beyond the expected level of 51,800. The outlook remains negative. Resistances are at 52,000 and then in the 52,300-52,400 region.
The Dow Jones can fall to 51,200-51,100 from here. Any bounce back move thereafter will be short-lived. An eventual break below 51,100 can then drag the index down to 50,100 and even 49,800 or 49,500 in the coming weeks.
S&P 500 (7,650.51)
The crucial support level of 7,500 has held very well last week. The S&P 500 index has risen back recovering almost all the loss from the low around 7,508.
A follow-through rise from here can take the index up to 7,700-7,720, a key short-term resistance. A decisive break above 7,720 will then clear the way for the rise to 7,800. It will also keep the upside open to see 8,000.
But failure to breach 7,720 can drag the S&P 500 index down to 7,600-7,500 again. As mentioned last week, a strong break below 7,500 will only indicate a bearish trend reversal.
NASDAQ Composite (26,522.55)
The break below 25,900 did not sustain. The index has risen back well from the low of 25,803. If the bounce sustains and the index manages to breach 26,700, then that will be positive. In that case, a rise to 27,300-27,350 can be seen. An extended rise to 28,500 is also a possibility.
From a big picture, the upside is likely to be capped either at 27,350 itself or around 28,500. A strong downward reversal thereafter can drag the NASDAQ Composite index down towards 25,000. So, more caution is needed as the index goes up from here.
Dollar Outlook
The dollar index (100.22) has made a bullish breakout above 99.85. The trigger for the break came after the US Federal Reserve’s 25-basis points rate hike on Wednesday.
The region between 100 and 99.80 will now act as a good support zone. The outlook is bullish to see 101-101.30 from here. A decisive break above 101.30 is needed to boost the momentum and take the index higher to 102-103 levels.
The index will come under pressure only if it breaks below 99.80. If that happens, a fall to 99-98.80 can be seen.
Treasury Yield
The US 10Yr Treasury Yield (5 per cent) oscillated around 5 per cent all through the week. The Fed in its economic forecast has kept the doors open for another 25-bps rate hike for this year. This coupled with higher crude oil price can aid the yield to sustain higher.
There are good chances to see a rise to 5.15 per cent from here. Support is at 4.9 per cent. In case the yield breaks below it , then a fall to 4.8 per cent can happen first. Thereafter, a fresh rise can take it back above 5 per cent.
