Summary of US Markets:
· Per our expectations, the market was mostly consolidating sideways until Friday
· On Friday we experienced a good rally, with increasing volume suggesting commitment of the market towards bullish sentiment
· The supply zone 3008-3028 in S&P 500 is almost consumed. NDX (NASDAQ 100), the stronger among the key markets, has hit a new all time high on Friday 25th October
· While being bullish on this market, we expect some volatility this week. Many key data such as FOMC statement, US GDP and jobs data will cause the volatility.
The markets last week consolidated sideways for four days, much as we expected. S&P 500 traded in a very narrow range 2991-3016 but without showing any sign of future weakness. On Friday 25th October, the market rallied in the morning to retest the all-time high once again. This was the fourth retest to the identified supply zone since it was identified after the drop of 31st July. However this time the market has completely penetrated the zone, suggesting that the zone is now completely weakened.
NDX – NASDAQ 100 index – the stronger index among the key US indices was stronger than SPX, and posted a new all-time high.
We often study the price action on index ETFs – such as SPY and QQQ. These ETFs are highly liquid and represent market movement very closely. But unlike the index, these ETFs provide additional information as in the volume traded, giving more information about the market momentum and sentiments.
In both SPY and QQQ, we see that the daily volume had increased towards end of the week (highlighted using blue arrow). Usually this is understood as a sign of commitment of the traders towards the market direction. The Friday move up also happened with increasing volume on the same and preceding day, suggesting that the market is expecting a breakout above all time high, which may happen this week. One of the news events this week may act as the trigger.
In the hourly time-frame we can see a few significant demand areas that were origins of either massive gaps or large upward moves. Thus – if the market were to go down, it needs to overcome these significant areas of demand. Bottom-line – technically the path of lower resistance is upwards, rather than downwards.
Outlook Ahead for S&P 500, NASDAQ 100, DJIA Indices
Expectation for the week is – the markets appears inclined towards upside, and will make an attempt to breakout higher. The fundamental news will play the trigger – it could be any of FOMC, GDP or jobs data, or could even be something else. The market expects a 25 basis points drop in FED rate, but that is already built in the price. However, it is reasonable to expect the market to remain more volatile than average on Wednesday and Friday this week. So, trade with caution, with calculated stops in place.