Wall Street indices were again strong overnight and once more today we see the S&P 500 making all-time highs (aided by the similar move in the tech-heavy NASDAQ). The Wall Street bulls remain in control. However, despite this continued strength in the trend, this has been an incredible run higher and conditions are becoming stretched. Also, looking at other major indices around the world, the bulls seem to be far less assured and the reversal signals are mounting.  

  • S&P 500 and NASDAQ remain very strong but stretched.

  • In Europe, signals of potential correction are creeping in. 

  • In Asia, the warning signs of a reversal are even more pronounced. 

Wall Street trend is strong but is looking stretched

“The trend is your friend.” This is one of the most important things to remember in technical analysis. The S&P 500 and the NASDAQ 100 both continue to run higher within their uptrend channels. Both are pushing their all-time highs. 

Chart/S&P 500 Futures (daily)

Chart/NASDAQ 100 futures (daily)

However, despite testing all-time highs, on the daily charts, the Relative Strength Index momentum is not confirming with a similar move on either index. Furthermore, during the past couple of weeks, some question marks are surrounding the continued strength. The weekly charts show warning signs: 

  • S&P 500 (SP500ft) with a “Doji “ candle (with 14 week RSI at 70)

  • NASDAQ (NAS100ft) with a “Hanging Man” candlestick.

These are both signs of uncertainty and potentially corrective candles, especially if followed by negative candles this week.

The big caveat remains the fact that selling in a rising market is risky, however, the signs are beginning to show.

Chart/S&P 500 Futures (weekly)

Chart/NASDAQ 100 futures (weekly)

European indices struggling for traction, threatening tops

European markets are off their recent highs. Interestingly too, as momentum has faltered in the past week, they are also threatening to form top patterns. The German DAX (GER30) and FTSE 100 (UK100) appear to be leading this move.

DAX has struggled since the beginning of April. Aside from a sharp move higher (and subsequent retracement) in the middle of the month, it has been a very quiet time for the DAX. This is now breaking an uptrend channel. However, as momentum on the daily and 4 hour chart has grown tired the potential for a corrective move is growing as traders become increasingly wary and lock in profits.

Chart/ German DAX

Support at 15,165 needs to be watched initially before key support at 15,085 below which completes a top that could drag the market back into the 14,400/14,800 support area in due course. Initial resistance 15,350/15,410 under the all-time high of 15,523.

FTSE 100 has picked up in recent sessions and continues to trend higher, however, it still looking susceptible to a top if resistance band 6960/7040 develops a lower high. If so, then key neckline support for a potential top is 6840/6855 certainly needs to be watched.  

Chart/ FTSE 100

Asian markets already faltering, threatening corrective moves

In Asia, major markets are looking even more developed in their topping patterns. Japan’s Nikkei 225 (JPN225) has been consolidating sideways since early February. With lower highs, there is growing pressure on key medium-term support at 28,285/28,295.

Chart/ Nikkei 225

Momentum has also taken a negative bias too in the past two months as the RSI oscillates between 35/60. Furthermore, there has just been a “death cross” on the 21 & 55 day moving averages.

Hong Kong’s Hang Seng (HKG33) is another market struggling to make any upside headway now. Resistance is consistently being found between 29,250/29,550. The RSI is suggesting a corrective move and the lack of buying intent increases the risk towards a retest of the key March low around 27,500.

 Chart/ Hong Kong’s Hang Seng