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S&P 500 and Nasdaq Technical Support and Resistance, Where to Now?

February 26, 2023

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1:10 am

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34 comments

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Economics

S&P 500 daily chart courtesy of Stockcharts com, annotations by Mish

Chart Notes

Gaps occur when a stop opens below the low of the previous day or above the high of the previous day then stays there.
The blue box notes a partially filled gap, the bottom of which is at 4195.08. On three occasions, there were rallies into the gap area without fully closing the gap.
The red dashed lines are resistance lines, places where rallies have failed.
The blue dashed lines are support lines, places where buyers have bought stocks before and may do so again.

People dismiss Technical Analysis (TA) as voodoo but it works because people and algorithms use it.

Mistakes come in because people believe it is supposed to predict something. Nothing in the above chart predicts anything.

The point of TA is not to predict, but rather to identify lower risk entry points for buys and sell.

Gap Magnets

Gaps tend to act like magnets. Eventually, most if not all of them close. Shorting in June of 2022 was not a good idea.

Not only was a big downtrend in place there were two stacked down gaps to boot. By August, both of those stacked gaps closed.

In closing the afore mentioned gaps, there was a gap up that filled in mid-September.

I was wondering if that unfilled gap would close. It could but three failed attempts that partially filled the gap may be sufficient to satisfy the gap gods.

Support and Resistance

In a comment on Twitter a couple of days ago, someone talked about numerous support levels. I commented “Support is excellent at zero.”

Then I said, “More seriously, here are some charts.” And that is the subject of this post.

S&P 500 Weekly Technical Support and Resistance

*S&P 500 weekly chart courtesy of Stockcharts com, annotations by Mish*

OK, there is a lot of support but there is also huge resistance. From the point of view of a weekly trader, this would be a poor point to buy or sell given that it’s half way between support and resistance with no good stop out point close by.

Nasdaq 100 Daily Technical Support and Resistance

*Nasdaq 100 daily chart courtesy of Stockcharts com, annotations by Mish*

The Nasdaq 100 has one unfilled gap, two partially filled gaps, and a tiny unfilled gap that partially filled the same day.

Otherwise, note how many of the gaps have closed. Buying gap ups or shorting gap downs for other than a quick trade can cause misery if you hold them too long.

Nasdaq 100 Weekly Technical Support and Resistance

*Nasdaq 100 weekly chart courtesy of Stockcharts com, annotations by Mish*

The Nasdaq 100 has huge overhead resistance with a few support levels nearby. I expect those support levels will not offer much support in practice, but the 1050 level offers a better chance.

Fundamentally Speaking

Fundamentals add to the technical picture. Stocks are historically overvalued, the Fed is hiking, the earnings picture looks bleak.

Rallies can occur anyway, at any time, and they have, regardless of fundamentals.

But in general, support levels eventually break in bear markets. Resistance levels eventually break in bull markets.

Looking Ahead

Ultimately, I suspect every one of the support levels on the S&P 500 to break down to approximately the 2200-2400 level or so, at a minimum.
Ultimately, I suspect every one of the support levels on the Nasdaq 100 to break down to approximately the 6000 level or so, at a minimum.

On the S&P 500, that would be a total decline of 50 percent or so. On the Nasdaq 100, that would be a total decline of about 65 percent.

The key words are “at a minimum”.

It’s important to understand that my expectations represent very routine bear market declines.

The Fed, Congress, and Presidents Biden and Trump acted together to blow one of the biggest, if not the biggest, economic bubble in history.

Fed’s Role in This Inflationary Mess

For discussion, please see How the Fed Messes With People’s Lives From a Mortgage Rate Perspective

This post originated at MishTalk.Com

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34 Comments

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Oldest Most Voted

Salmo Trutta

3 years ago

The deceleration in M2 is entirely due to dis-savings (drop in savings deposits relative to means-of-payment money). At some point, this decrease in money demand, temporary rise in Vt, will end.

8dots

3 years ago

Reply to Salmo Trutta

If dis-saving pay c/c debt, or other types of debt, the Trouts might escape the bears.

xbizo

3 years ago

I am just wondering how we connect a mild recession forecast to 40% drop in the market prices. Based on CAPM, that would mean higher long term inflation expectations. A bump in inflation expectations (and 10 year Treasury) by a full point and a zero percent increase in company cash flows, would maybe be a 15% market drop.

Like Vanderlyn, I think the massive disruptions of 2020-21 take many more years to play out. I don’t believe the 2020 bottom is a valid data point to use. If you take that out, where does the analysis take you?

worleyeoe

3 years ago

Reply to xbizo

A mild recession represents about a 20% drop, not 40%. A mild recession, to me, is one where the unemployment rate doesn’t rise past 4%. It’s basically a small amount of job losses that forces some people to jump back into the labor market which would raise the unemployment level up to around 4%.

Six000mileyear

3 years ago

The SP500 and NDX made new highs off the October 2022 lows in 2023, but the Dow Industrials did not. This is a warning of a possible top.

Christoball

3 years ago

Stock buybacks totaled nearly 1 trillion dollars in 2022. In a 20 trillion dollar a year economy this represents 5% of GDP. Imagine that 5% of our GDP is spent on stock buybacks. Now some say this represents a companies belief in the strength of the company, but lets be honest; it provides a way for insiders to sell stock options without cratering share price.

“Buybacks’ drain on corporate treasuries has been massive. The 465 companies in the S&P 500 Index in January 2019 that were publicly listed between 2009 and 2018 spent, over that decade, $4.3 trillion on buybacks, equal to 52% of net income, and another $3.3 trillion on dividends, an additional 39% of net income. In 2018 alone, even with after-tax profits at record levels because of the Republican tax cuts, buybacks by S&P 500 companies reached an astounding 68% of net income, with dividends absorbing another 41%.”

I think this hocus-pocus has accelerated since 2019 so the levels are astounding and unsustainable. It would not surprise me to see the S&P 500 drop to Jan. 20, 2017 prices of 2,269.96 the Day President Trump took office. BEAR in mind, haha, that this number will be in inflation diluted dollars. Even todays numbers are inflation diluted, so don’t think you are knocking it out of the ball park unless you are at least exceeding dollar devaluation. I think Trump had good intentions with tax cuts, but corporate America did otherwise.

When corporate America says they can’t compete with American wages being higher than slave wages; what is truly happening is they can’t compete and skim money at the same time.

klausmkl

3 years ago

Reply to Christoball

The market will stay somewhat high just to keep the illusion to the masses that live in fantasy nation, feeling optimistic. Eventually , the optimistic feeling will no longer be necessary to continue. Then reality cometh. Besides folks need to continue to go to work to keep this beast moving forward.

PapaDave

3 years ago

Hi Mish. I appreciate the analysis that you do. You used similar technical analysis and charts in your two January articles on Tesla.

Tesla Kicks Off the New Year With a 13 Percent Plunge and Disappointing Sales

Tesla (TSLA) shares started 2023 where they left off last year. The dive continues.

JAN 3, 2023

How Not to Buy the Dip in Tesla (or Anything Else)

‘Why would I invest in a basket of dinosaurs?’ one die-hard says of other big U.S. stock.

JAN 22, 2023

Wondering if you could update these articles now that Tesla has doubled from roughly $100 to $200. What do the charts look like now?

I did buy the dip around $100. Traded it multiple times. But exited way too early at $129.

Doug78

3 years ago

Reply to PapaDave

Mish missed on Tesla as very many others did. His track record is still excellent so I see no reason to reproach him for Tesla.

PapaDave

3 years ago

Reply to Doug78

I am not reproaching him. I am asking for more analysis on Tesla after the big runup.

In fact , it was Mish’s suggestion that it might be a good time to play a bounce in Tesla that made me look at it. What Mish was pointing out in the second article was “how not to buy the dip” with options.

Though I wonder how that turned out for the gentleman that he referenced.

As usual, I am here, looking for investment opportunities that exist. And Mish occasionally provides some good ones.

Zardoz

3 years ago

Reply to PapaDave

Elon’s King of the Incels show has damaged the brand significantly. He’s thrown in with the coal rolling, basement Nazettes, instead of the fancy folks that want to show off their carbon footprint and actually have the money to buy those cars.

The man hid his idiocy really well, but just didn’t have the self control to keep it going. The circus music started with the cave rescue, and gradually reached a crescendo with Twitter.

He’s a clown with a clown car now.

PapaDave

3 years ago

Reply to Zardoz

I am tired of the media focus on Musk, and I am just as tired of Musk’s adoration of Musk. I ignore it all as best I can.

I am merely interested in the investment opportunities that exist. If I see an opportunity to make money on Tesla stock, I will. I did pretty well trading Tesla from late Dec to mid January. But I got out too soon.

PapaDave

3 years ago

Reply to Zardoz

My first comment went to the moderator. No idea why.

Basically; I don’t care about Musk. I care about investment ideas.

worleyeoe

3 years ago

Reply to PapaDave

IMHO, Tesla has to get an inexpensive car into the market as well as a traditional SUV. The cyber truck or whatever can wait. The batteries are so large & expensive that, for the next 5-7years, EV trucks will be mostly niche.

Supposedly Tesla China has developed a sub $25K car. From a technology standpoint, I’d like to know exactly how Tesla’s 4680 battery and, or whatever they have planned next is going to take on & beat solid state batteries. It seems like the market is moving to LFP batteries as a stop gap to solid-state’s rollout in 2-4 years.

I remember the 4680 announcements at their September 2020 Battery Day event. There was so much hype, but in reality very little has been delivered. I just can’t believe that they don’t have a solid-state battery skunk work project.

They sold 1.3million cars last year, so they are doing a lot right. It just seems like we’ve reached the point where GM especially in the US has the ability by late this year to start putting a dent into Tesla’s sales.

PapaDave

3 years ago

Reply to worleyeoe

Love competition. It will make better cars and better batteries. And we will all benefit. Of course some companies will be winners and some will be losers. But thats how it always works.

Zardoz

3 years ago

Reply to PapaDave

His behavior has a significant effect on any tesla Investment. Do you think he’s going to get more kooky, or less?

PapaDave

3 years ago

Reply to Zardoz

I have no idea. Hopefully he just shuts his mouth and gets back to running his businesses. But I have no say in that.

8dots

3 years ago

WWI might flip to WW #3 in Ukraine. In 1870’s the Russian army was in Di Stefano, today Ataturk airport, ready to retake Constantinopole.

Disraeli said no ruskies in My Mediterranean. After Alexander the II and Disraeli got along in Berlin conference Constantinopole was lost.

The Ottoman empire survived thanks to Disraeli and Churchill’s Gallipoli. Alexander II was assassinated in Mar 1881. Putin will not yield to Churchill II. WW #3 will stay local, in Ukraine. Regional wars might spread, but will be contained due to US strength. Supporting Ukraine is an option. Being fully committed to fight China and Putin is too risky.

klausmkl

3 years ago

Reply to 8dots

US strength? Have you looked at the populace of America recently? We have 80% obesity among adults. We have already lost.

randocalrissian

3 years ago

Reply to klausmkl

The drones disagree

klausmkl

3 years ago

Smart money has been involved in organized selling for a while now. They know War is here. Dumb money has been buying the dip. They tell themselves they are in for the long haul and continue averaging down. War is inflationary and is not going away. The War cycle will continue and go global. Stay on fantasy Island if you wish, basking in sunshine and drinks.

8dots

3 years ago

In 2020 Trump transfer money kept our businesses and mfg alive. Since Jan 2022 realized gains taxes and transfer money deflated in real terms. The real DPI minus transfer is up. // US gov is a huge sector in our economy. Without gov spending and capex our econ might enter a state of shock. Private capex is down because most ceo are bearish. US gov spending punched a hole in the ceiling. If congress get along the Dow might rise to a new all time high.

FromBrussels2

3 years ago

Maybe algorithms should be notified that WW3 is encroaching upon us with every that passes…..and that’s exactly what your Empire of Lies and Eternal War aspires…..

OUdaveguy

3 years ago

Do we even have a “market” with all the Fed’s shenanigans and central planning, direct government intervention, sovereign wealth funds, HFT algos, price fixing, and gargantuan Ponzi-like fraud like SBF/Madoff/Corzine, etc.? Do we even have a financial environment where you can make smart investing decisions when the official data is purposely warped by statistical gimmickry like hedonics and smoothing? A big part of Mish’s analysis is just revealing all this distortion, deception, dishonesty, swindling and obfuscation with “markets” and the world of finance….thanks for uncovering it all Mish!

hmk

3 years ago

Reply to OUdaveguy

I am also wondering how 0DTE’s distort TA if at all.

8dots

3 years ago

Bearishness will die if the Dow make a new all time high. DXY reached 0.886 of 2000 high.

Jojo

3 years ago

Do you have any possible events and time frame that might kick off the decline down to the S&P 2200 range?

Billy

3 years ago

The more that the Fed invents ways to manipulate the laws of finance(tools), the less history is relative. That along with alogos and the government buying into the markets is why technical analysis is becoming more accurate than fundamentals.

TexasTim65

3 years ago

That last chart (weekly) is showing that the NASDAQ is making a sequence lower highs and lower lows. That’s not a bullish sign and in fact is a bearish one.

HippyDippy

3 years ago

Since basically, all of our major manufacturing sectors were turned into bubbles, I’m at a loss as to how this isn’t the worst one. And, the others were all handled by rewarding those who made the bubbles possible, which not only did not fix the situation, they exasperated it. This one is no different in the way it’s being handled. Since it’s across so many sectors, the solutions should have exponentially more horrible effects. I’m still of the opinion that we have enough stupidity in the global”leadership” that we can drive this economy right down the toilet.

Glad you included that bit of explanation on how to correctly use TA. TA is probably one of the most misused tools in the industry. Especially by the gamblers, who think they’re sophisticated because they use all the bells and whistles most should avoid. But, they’re going to lose it all anyway.

vanderlyn

3 years ago

i’d surmise any historical analysis on the current situation after the world wide shutdown(just think about that situation for more than a minute), and the money printing of 25 years in 2 years time, and the subsequent past year, we ain’t seen anything like a resolve to basics. probably take at least a decade. it is like the post ww2 boom in spending and good times, and low unemployment and inflation. trading the stock market has never been correlated to earnings, unless one has a fifteen year analysis. the market trades in the short term on animal spirits, and amount of stocks on the shelf of the market place(like the grocery stores), and the amount of money supply. the money supply has been through the roof after a 15 years of ZIRP followed by money printing to the roof. not a man cannot find a job. i suspect we are all gonna look like fools trying to benchmark these last few years and next few years to anything in the past century. just nothing comes close. toss out all your 3rd base easy life of post great depression comparisons.

TheWindowCleaner

3 years ago

You’re right there’s no actual pattern there at all…because:

1) the point of speculation is purely monetary and financial, and

2) as Steve Keen has shown Minsky’s financial instability hypothesis is true, and

3) so its a chaotic system

Of course lots of speculators are habitual gamblers so its fun for them, but when the system is unstable as it truly is, economic punditry on the right that affirms the orthodoxies of the current paradigm of Debt Only like austerity and the quantity theory of money, or gets lost in well intentioned but no less unresolving punditry on the left like envy ridden taxation and generalized negativity…aren’t up to finding a better and more rational and stable system.

Paradigmatic analysis and mental breakthrough is required at this point, but no one has the guts, the good sense or has developed the mental tools for looking at the system from that level.

Lisa_Hooker

3 years ago

Reply to TheWindowCleaner

The system is based on the casino model where there are a sufficient number of random “winners” to lead the masses to believe that they can win too. See also: Lottery. FYI – only the house wins, a little bit every time. The customers don’t have yachts because only the brokers make a little bit on every single trade.

michiganmoon

3 years ago

Buckle up.

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S&P 500 and Nasdaq Technical Support and Resistance, Where to Now?

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