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S&P 500 and Nasdaq 100 Have Sights Set on Yearly Highs

By:Christopher Vecchio - CFA

Bullish technical structures remain in place, helping stocks scratch and claw their way higher—barring binary event risk

  • Equity markets are working on their fourth straight week of gains.
  • The S&P 500 (/ESZ3) is facing a technical test at the Sept.15 high (bearish key reversal), while the Nasdaq 100 (/NQZ3) is a stone’s throw away from the yearly high.
  • The Russell 2000 (/RTYZ3) technical structure is improving within an inverse head and shoulders pattern.

Fig. 1: Year-to-date price percent change chart for /ES, /NQ, /RTY, and /YM

Market update: S&P 500 up +7.95% month-to-date

A holiday week is upon us, and volatility continues to get sucked out of U.S. equity markets. Nevertheless, bullish technical structures remain in place, setting up an environment where stocks can scratch and claw their way higher barring binary event risk derailing the uptrends. Of note, three bond auctions (two-year FRN, 10-year TIPS and 20-year bonds) pose meaningful risk, and a slew of earnings releases (Nvidia (NVDA), Lowe’s (LOWE) and John Deere (DE)) could puncture what has been a goldilocks narrative.

/ES S&P 500 Price Technical Analysis: Daily Chart (September 2022 to November 2023)


Last week, we noted “a close above 4435 this week would offer strong confirmation that materially significant lows have been formed.” That was achieved and then some (closing at 4527.50), putting /ESZ3 on a path to continue its attempt to reverse the losses between late July and late October.

Momentum remains exceptionally strong. /ESZ3 is above its daily 5-, 13- and 21-EMA (exponential moving average) envelope, which remains in bullish sequential order. Slow stochastics are holding in overbought territory, and MACD (moving average convergence/divergence) is still trending high above the signal line. The next technical resistance comes in at 4566, the Sept. 15 high of the bearish engulfing bar/key reversal. Beyond there, little stands in the way (from a technical perspective) of a return to the yearly high at 4685.25.

/NQ Nasdaq 100 Price Technical Analysis: Daily Chart (December 2022 to November 2023)


In the continuous contract, /NQ missed retaking the yearly high by less than 50 points; the exchange-traded fund (ETF) QQQ, would close at a fresh yearly high if the market closed at these levels today. Alas, /NQZ3 still has some wood to chop, but it may not be far behind in retaking the high watermark achieved in July.

In clearing its September high and now treating the former resistance as support alongside the daily 5-EMA (one-week moving average), /NQZ3 continues to express a thoroughly bullish technical structure: Slow stochastics remain in overbought territory, and MACD continues to trend higher above its signal line. It thus remains that the bullish falling wedge is the primary technical interpretation for the foreseeable future, targeting a return to the yearly high at 16264.25.

/RTY Russell 2000 Price Technical Analysis: Daily Chart (April 2023 to November 2023)


In the weekly technical outlook of last week, we noted that “there is a lot more work to be done before bulls can feel comfortable in any serious fashion.” All of that supposed work was achieved the following session after the October U.S. inflation report, when /RTYZ3 rallied by more than 5.5%, breaking above the descending trendline from the August and September highs as well as the neckline of an inverse head and shoulders pattern.

While /RTYZ3 has run into familiar resistance around 1820/1850 (which has been both support and resistance since the regional banking crisis in March), the improvement in the momentum profile coupled with the bottoming pattern keeps /RTYZ3 on favorable footing for the foreseeable future. Moreover, whereas volatility in /NQZ3 (IV Rank: 2.8) and /ESZ3 (IV Rank: 11.2) has all but disappeared, /RTYZ3 offers a more appealing volatility profile (IV Rank: 31.2) for options traders.

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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