Technical analysis reveals two concerning chart patterns in the S&P 500 and Nasdaq 100 that could signal a significant shift in trend for both indexes.
The S&P 500 is forming a bearish flag pattern within a broader rising wedge, while the Nasdaq 100 has broken below a pennant formation. If these patterns play out as expected, it could mean that the recent market could be on the verge of a reversal.
Below, we'll take a look at the technical situation for both indexes.
1. S&P 500's Bear Flag
A move lower in the S&P 500 yesterday helped to fill the gap from Friday’s opening. The index also hit the 10-day exponential moving average and failed there, closing below the 50-day moving average.
Technically, the pattern looks more like a bear yesterday, which is being formed within the bigger, over the past couple of days within a larger and longer-term rising wedge pattern we have been tracking for several weeks.
A break below 5,400 likely means the bear flag is broken, which would indicate that the rising wedge could be broken. If, by week’s end, the rising wedge is broken, it is likely because the move higher in the index is over.
2. Nasdaq 100's Pennant
The pennant in the Nasdaq 100 broke lower yesterday, allowing the index to move down to the trend line that started in October. A break of that trend line would also be an important change in trend.
Microsoft Plunges Following Earnings
Microsoft Corporation (NASDAQ:MSFT) reported results yesteray. I have owned this stock for a long time, since early 2019, and reading through them, they weren’t that great when compared to the expectations.
The beat on the top and bottom was minor, commercial cloud revenue was a miss, intelligent cloud revenue was a miss, Azure growth was a miss, Capex was higher than expected (not good), and free cash flow was a miss.
It just isn’t often you see so many numbers that miss expectations across multiple categories. You can’t miss when trading at 36 times the next twelve months’ earnings estimates.
Guidance will be key, of course, but it seems clear at this point that the ascending broadening wedge is now broken, and support at $396 is essential. A break of support at $396 could lead to a further drop to $370.
Nvidia Drop Weighs on Indexes
It wasn’t a good day for Nvidia (NASDAQ:NVDA) either, with the shares dropping some 7%, breaking below support at $109, and the next major support level at $95.
I think the double top has been confirmed at this point, and, interestingly, a projection of the top of the double top to the neckline suggests the stock falls to around $95.