Nasdaq 100, Russell 2000 Break Bearish Momentum

Nasdaq 100 down 4.90% month-to-date

• Having survived both NVDA earnings and the Federal Reserve’s Jackson Hole conference, stocks are continuing to claw higher.
• Both /ESU3 and /NQU3 are carving out ranges.
• /RTYU3 is starting to bounce back above a key trendline that suggests the correction may be finished.

The rally that emerged from the Federal Reserve’s Jackson Hole Economic Policy Symposium continued at the start of the new week. Led higher by the Russell 2000 (/RTYU3), the four major U.S. equity indexes are continuing to build on developments last week.

At least from a technical perspective, not much has changed, seeing how it was noted just a week ago that “the S&P 500 (/ESU3) and the Russell 2000 have reached meaningful technical support that has been carved out over the past several months, bringing about a crossroads of sorts: the bleeding stops here, and a base forms for a turn higher; or this is merely a pit stop before a swing to fresh multi-month lows.”

/ES S&P 500 price technical analysis: daily chart (August 2022 to August 2023)

In the prior technical note, it was observed that “a morning candlestick pattern—a three-candlestick bottoming effort–may be forming in the area around the early-June swing highs and the late-June swing low, roughly 4335/65. Such a pattern would offer a technical reason to think a short-term low is forming.” Since then, no new monthly lows have been reached; however, Thursday’s bearish outside engulfing bar warns that upside could be curtailed in the near-term.

Momentum has started to neutralize. /ESU3 is back above its daily 5-EMA, but still below its daily 13- and 21-exponential moving averages (EMAs). The descent below its signal line of the moving average convergence /divergence (MACD) is slowing, while slow stochastics have already bounced out of oversold territory. Collectively, it may be the case that a range may be forming between the morning star candlestick cluster low and the outside engulfing bar high (4350/4485).

/NQ Nasdaq 100 price technical analysis: daily chart (August 2022 to August 2023)

/NQU3 may have indeed formed a short-term low, but like /ESU3, the Thursday price action warns that overhead resistance lingers close by. This means a near-term range may be forming (14609/15418). Momentum is neutralizing in /NQU3 as well. The trend lower in MACD is abating, while slow stochastics have moved out of oversold territory. Meanwhile, the index is back above its daily 5-EMA but remains below its daily 13- and 21-EMAs.

/RTY Russell 2000 price technical analysis: daily chart (August 2022 to August 2023)

/RTYU3 may have the best case for a bottom having formed that will not only halt bearish momentum, but also lead to more meaningful upside. Unlike /ESU3 and /NQU3, /RTYU3 has already breached the outside engulfing bar high set on Thursday, negating the candle as a potential topping signal. In turn, it may be establishing a double bottom from the Aug. 18 and Aug. 25 swing lows in the 1825/45 area, which has been both support and resistance dating back to March. Coupled with a return above the trendline from the intramonth May swing lows, there are green shoots forming in /RTYU3 that is giving traders a workable low.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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