Jump to content

Dow Jones, S&P 500, Nasdaq 100 Outlook for the Week Ahead: All Eyes on the Fed

Recommended Posts


  • Dow Jones, S&P 500 and Nasdaq 100 futures wrap up a strong week
  • Inflation data has traders eyeing the Fed and its balance sheet next
  • Quadruple Witching Day is Friday, Dow retail positioning bets eyed

Dow Jones, S&P 500, Nasdaq 100 Outlook for the Week Ahead: All Eyes on the  Fed

This past week, futures tracking the Dow Jones, S&P 500 and Nasdaq 100 closed +3.74%, 3.55% and 3.72% respectively. This meant the best weekly performance since earlier this year, reversing losses accumulated since late November as Omicron Covid-19 variant woes faded. An in-line CPI report, which showed inflation around a 40-year high, did little to further boost hawkish Federal Reserve policy bets.

With the inflation report now behind us, equities are turning their attention towards the last Federal Reserve monetary policy announcement of the year. Policymakers are not expected to change the Federal Funds Rate, but that’s not what traders will be tuning in for. With general price growth around a 40-year high, expectations have been rising that the central bank could speed up tapering asset purchases.

In fact earlier this month, Chair Jerome Powell noted about how they will retire the term ‘transitory’ from explaining inflation. A strong labor market, with jobless claims at a 1969 low, and rising economic growth projections, via the Atlanta Fed GDP Now, bodes well. However, recent episodes of a slowing balance sheet have been associated with near-term pullbacks in the stock market – see below.

Still, the central bank will likely continue to hold a cautious view, especially amid the Omicron Covid-19 variant. As 2022 wraps up, investors will likely continue positioning themselves for the road ahead. A more hawkish Fed is becoming an increasing reality. All else being equal, the Fed raising benchmark lending rates, coupled with a reduction in government bond purchases, tends to bode ill for risk assets.

Friday is ‘Quadruple Witching Day’. That is the simultaneous expiration of stock index futures, single stock futures, stock index options and stock options. This tends to increase trading volumes and possibly volatility as investors offset existing trades that are profitable. Historically speaking, stock markets tend to be rather quiet. But, exhausted demand for equities in the weeks after could bode ill for sentiment.


sp500 vs fed balance


Taking a look at IG Client Sentiment, which shows retail trader positioning in markets, investors are about 39% net-long the Dow Jones. Since most traders are short, this suggests prices may continue rising. Downside exposure has increased recently over a daily and weekly basis. The combination of overall positioning and recent shifts in exposure is offering a stronger bullish contrarian bias.

igcs, us30, wall street, dow jones

*IG Client Sentiment Charts and Positioning Data Used from December 10th Report


Written by Daniel Dubrovsky, Strategist for DailyFX.com. 13th December 2021.

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
    • Total Posts
    • Total Members
    • Most Online
      10/06/21 10:53

    Newest Member
    Joined 07/10/22 05:36
  • Posts

    • We are moving into ‘nonfarm payrolls Friday’ and the potential for volatility is significant after a broad mix of preceding employment statistics. While the employment report can certainly spur the markets like the S&P 500 and Dollar to action, traders should keep tabs on growing warnings from the IMF and Fed officials.   Full article on DailyFX  
    • United Parcel Service Inc., Elliott Wave Technical Analysis United Parcel Service Inc.,  (UPS:NYSE): Daily Chart, October 7 2022,   UPS Stock Market Analysis: Moving as expected, we are looking for further downside with at least one more move down.   UPS Elliott Wave count:  (iv) of {c} UPS Technical Indicators: We are below all averages UPS Trading Strategy: Looking to short on wave (iv) to potentially target equality of {a} and {c} at 148$. TradingLounge Analyst: Alessio Barretta Source Tradinglounge.com Get trial here!       United Parcel Service Inc.,  UPS: 4-hour Chart, October 7 2022   United Parcel Service Inc.,  Elliott Wave Technical Analysis UPS Stock Market Analysis: The subwaves are pretty clear which gives us additional confirmation. Looking for further downside and potentially a sideways wave (iv) alternating with wave (ii). UPS Elliott Wave count:  Wave (iv) of {c}. UPS Technical Indicators: We are using the 20EMA as resistance as well we are starting to form RSI divergence. UPS Trading Strategy: : Looking to short on wave (iv).  
    • FTSE 100, DAX 40 and Nasdaq 100 stall ahead of US jobless data Outlook on FTSE 100, DAX 40 and Nasdaq 100 ahead of US Non-Farm Payroll data which may influence the US Federal Reserve’s (Fed) monetary policy going forward. Source: Bloomberg   Indices Federal Reserve United States Monetary policy DAX FTSE 100  Axel Rudolph | Market Analyst, London | Publication date: Friday 07 October 2022  FTSE 100 rally taking a breather The FTSE 100 is retracing lower ahead of the widely anticipated US non-farm payroll (NFP) data which may influence the Federal Reserve’s (Fed) monetary policy going forward. The index has so far rallied by over 4% from its September low on the back of hopes of a slowing tightening path by the Fed after softer US economic data earlier in the week but ran out of steam slightly above the 7,100 mark. The June low at 6,966 may be revisited. Below it sits further minor support in the 6,945 to 6,934 region, made up of the 26,27 September lows and the 3 October high. A bullish reversal and rise above this week’s high at 7,104 would likely engage the early September low at 7,131 as well as the 8 September low at 7,174. Source: ProRealTime DAX 40 slips ahead of US unemployment data The DAX 40’s swift ascent on hopes of a slowdown in the speed and size of global rate hikes following the Reserve Bank of Australia’s (RBA) lower than expected 25 basis point rate rise on Tuesday is taking a breather ahead of Friday’s US unemployment data. Following the contract’s technical bear trap, in which it dipped below its key March to July support at 12,386 to 12,432, only to then rally by over 7% to 12,704 before slightly coming off again, led it to revisit the 12,386 July low. Between this level and the 3 October high at 12,275 the DAX 40 may find support, however. If not, a slide towards the 30 September high at 12,138 may be witnessed. Immediate resistance comes in at the 12,596 early September low above which lie the 23 June low at 12,839, followed by the mid-June low and 20 September high at 12,940 to 12,944. The next higher 26 July low, 2 September high and 55-day simple moving average (SMA) at 13,021 to 13,066 may still be reached in the days and weeks to come, provided that no drop below the September low at 11,810 ensues. Source: ProRealTime Nasdaq 100 rally stalls ahead of US Non-Farm Payroll data The Nasdaq 100’s near 7% rally from its September low has given way to some profit taking ahead of Friday’s US jobless data which should give clues as to the direction the Fed will take with regards to its monetary policy. Throughout this week various Fed officials have continued to pour cold water on the idea of a pivot, suggesting that there is little likelihood of a change in policy due to the persistence of high inflation. This has led to the Nasdaq 100 giving back some of its recent strong gains and it slipping towards the 11,306 low seen on Wednesday. A rise above this week’s 11,668 high would put the early September low at 11,918 on the cards. Source: ProRealTime
  • Create New...