S&P 500, Nasdaq 100, Dow Forecasts: Rate Hike Rally Begins Pullback

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S&P 500, NASDAQ 100, DOW TALKING POINTS:

• U.S. equities put in a strong rip after last week’s rate hike at the FOMC, and as looked at during the event, equities hit a low right at the start of the press conference. Bulls have been large and in-charge ever since.
• A pullback has started to show overnight and this seems an opportune time to gauge just how aggressive bulls might remain to be. A rate hike and hawkish warnings aren’t often considered to be bullish for stocks, but the price action since the rate hike is undeniable. The question now is whether that shifts or changes a week after the hike?
• Stocks were testing major spots of long-term support last week and a stunning turn-around in Chinese stocks likely has something to do with this rate hike rally.
• The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

U.S. equities have put in a massive rally after the Fed hiked rates last week. And this was a ‘famine to feast’ kind of mood as the Nasdaq 100 had hit a fresh 10-month low just last Tuesday. Sellers even seemed aggressive around the initial statement of the FOMC hiking rates. But when the press conference started 30 minutes later, stocks began to bounce and that bounce hasn’t really quieted until last night. That rally accumulated as much as 13.56% in the Nasdaq 100 – in one week. And even then, it’s still early: There’s a large zone of support sitting underneath both the Nasdaq 100 and S&P 500 price action that, if bulls respond to, the door very much remains open for topside continuation.

NASDAQ 100

This has been the most extreme of the three U.S. indices so I wanted to touch on this first. The rally pushed 13.5% at it’s peak and as of right now, prices are around 12.4% above the Tuesday low.

The Nasdaq 100 set a fresh monthly high along the way while breaking through a number of key resistance levels, many of which now become potential support.

The big zone of interest in the Nasdaq 100 spans between two Fibonacci levels at 14,500 and 14,375. This zone came into play last October as support and it quickly came back into the picture this year as resistance in late-January, support in early-February and then resistance again in mid-March.

But, this zone was only able to stall the advance ahead of last week’s close, and bulls have run right through that zone to continue the trend this week. This becomes a massive spot of importance for the rally as it will help us to see just how aggressive buyers remain to be. And from that, we can begin to gauge just how aggressive we should be in response.

A hold in this zone today keeps the door open for bullish continuation scenarios. If the zone doesn’t hold, there’s another possible spot of support around 14,183. For near-term resistance, the 14,669 level remains important, after which 14,816 and 14,993 (the 15k psychological level) come into view.

NASDAQ 100 FOUR-HOUR PRICE CHART

Chart prepared by James Stanley; Nasdaq 100 on Tradingview

S&P 500

Similar scenario in the S&P 500 although the move has been less-emphatic. The index did not set a fresh 10-month low ahead of the Fed but it did similarly begin to rally at the start of the presser, and it hasn’t really slowed down since.

Regarding support, prices are testing a zone of prior resistance that held the highs in early-January, the lows in early-February and then the highs again later in the month. I’m tracking this from 4460-4472. And similar to the above setup on the Nasdaq 100, this zone held the highs at the end of last week. Buyers forced a breakout yesterday and prices even trickled above the psychological level of 4500 for a bit.

But today brings the pullback and now is the test for just how aggressive buyers want to push this theme. Below this zone of support is another spot around the Fibonacci level around 4430, and below that is a prior price action swing at the psychological level of 4400.

On the resistance side, 4500 may have some follow-through resistance and beyond that is a big spot at 4530. Bigger picture, the zone at 4590-4600 looms large and there’s a spot along the way at 4550 that remains of interest.

S&P 500 FOUR-HOUR PRICE CHART

Chart prepared by James Stanley; S&P 500 on Tradingview

DOW

The move in the Dow has been slower than the two above markets but, similarly, prices put in bullish price action with a recent higher-high. Looking beneath the surface, however, and there may be some attraction for bullish themes here.

Last Monday I highlighted that potential in the Dow as the index has built a symmetrical triangle formation. In and of itself, that’s just digestion and not really bullish, but the fact that it showed up around a major spot of support did make it more attractive for reversal scenarios. And the prices that I pointed out after the rate hike both came into play quickly as resistance.

At this point, the zone of support that I’m tracking on the index runs from 34,133 up to 34,250. A hold here keeps the door open for bullish continuation scenarios. On the topside of price action there’s one level that looms very large and it’s the 35k psychological level.

DOW JONES FOUR-HOUR PRICE CHART

Chart prepared by James Stanley; Dow Jones on Tradingview

--- Written by James Stanley, Senior Strategist for DailyFX.com. 23rd March 2022