S&P 500, FTSE 100, DAX 40 and Hang Seng Forecast for the Week Ahead

S&P 500, FTSE 100, DAX 40 and Hang Seng Index Technical Forecast Talking Points:

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Technical Forecast for Indices: Bearish

S&P 500 and the US Indices

There was a broad slump in global indices this past week, and the US benchmarks seemed to symbolically leading the charge. With the FOMC rate decision the anchor of the economic docket, it was hard to miss the tumble from the S&P 500 and its counterparts following the central bank’s 75bp rate hike. Ultimately, the benchmark index held back from breaking the low established back on June 17th. Though, the bounce in the twilight hours of liquidity Friday doesn’t offer much encouragement. Historically, September is the worst month of the year for the S&P 500 and the 39th week of the year (which we are heading into to close out the month) has averaged the worst loss of the calendar year back to 1900. If the market makes a move below 3,635 in the week ahead, the midpoint of the post-pandemic rally (March 2020 to January 2022) stands at 3,505. For a sentiment charge, traders would also do well to monitor the Dow Jones Industrial Average which ended this past week on the very cusp of a technical ‘bear market’. If we slip that support, it can sour the market’s outlook quickly.

US 500 Bearish
Data provided by

of clients are net long. of clients are net short.

Change in Longs Shorts OI
Daily 9% -4% 3%
Weekly 25% -14% 6%

Chart of S&P 500 200-Day SMA, Volume and 1-Day Rate of Change (Daily)

image1.png

Chart Created on Tradingview Platform

European Indices: A Break of the Long-Term FTSE 100 Channel and DAX at Long-Term 50%

Talk of recession and rate hikes have had a material impact on stock markets in Europe, but there is a significant gap in the progress between the United Kingdom’s benchmark index and those from the mainland Europe. From the FTSE 100, the -3.0 percent drop this past week isn’t extreme – at least not compared to the -7 percent drop in response to the Russian invasion of Ukraine or the epic -17 percent plunge during the pandemic – but it does come at a technically precarious time. This past week’s slide has pushed us through the floor of a rising trend channel that stretches back to the March 2020 lows and highlights the struggle the market has had in forging progress for the past 16 months. There is still range support over that time frame down to 6,840/6,790. Should that floor give way, it will open up the conversation of where the next major technical milestones are lower.

Chart of the UK’s FTSE 100 with 100 and 200-Week SMAs (Weekly)

image2.png

Chart Created on Tradingview Platform

Where the FTSE 100 is still wrestling with its wider range of congestion, Germany’s DAX 40 seems to be make more meaningful progress in its bearish efforts. The -3.6 percent drop this past week was not extreme, but it was technically significant as it pushed the market through the range floor back to March around 12,450. The drop has now put it in direct content with the 50 percent Fibonacci retracement of the post pandemic rally from March 2020 to January 2022. I have the midpoint just above 12,270 which the DAX closed just above Friday. Whether we see a hold here or a break, it was generate significant headlines and thereby speculative interest. That said, a move lower would likely generate greater fallout than the opposite course.

Germany 40 Bearish
Data provided by

of clients are net long. of clients are net short.

Change in Longs Shorts OI
Daily 12% -16% 2%
Weekly 17% -18% 5%

Chart of German DAX 40 with Volume and 20-Week SMA (Weekly)

image3.png

Chart Created on Tradingview Platform

Asian Indices Led by the Hang Seng Index’s Tumble

Looking across Asian equities, there was no escaping the global pain. Coming out of holidays, Japan’s Nikkei 225 was still mired in choppy congestion from the past year while the Australian ASX 200 has a June swing low that it is eyeing (around 6,400) in a chart that looks similar to the S&P 500. Systemically the Chinese Shanghai Composite carries inordinate weight for the region, but the external influence in the market draw scrutiny with its progress. The same controls are not as prevalent for its close cousin: Hong Kong’s Heng Seng Index. The market dropped -4.4 percent this past week, but we can’t do the technical implication of this slide justice on the weekly chart. On a monthly chart, we find that the drop pushed the market to its lowest level since the very end of 2011. Technically, there is a midpoint of the index’s lifetime range from 1987 to 2017 at 17,666; but I doubt that long of a historical backdrop will register with most traders. An open slide would put the 2011 lows on the radar and then the significant trough from 2008/2009.

Chart of Hang Seng Index with 20-Month SMA (Monthly)

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Chart Created on Tradingview Platform

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