The US small companies index is looking very vulnerable. FXCM's US2000 CFD monthly chart trades in its weak area between the lower blue and red bands. However, the concern is the stochastic in its lower quintile (red rectangle). This position suggests a solid underlying momentum to the downside. The longer it maintains this position, the greater the chance of further index declines.
Using a similar template, we consider the monthly US30 (left), SPX500 (middle), and NAS100 (right). Both the US30 and the SPX500 have moved into their weak areas. Moreover, both stochastics are heading down but have not reached the critical 20 levels. Given that this is a monthly scale, it will be interesting to see the charts at month-end. Will they still be in their weak zones or back in the neutral areas between the blue bands?
The NAS100, like the US2000, has already closed in its weak area. Its downside momentum is stronger than the US30 and SPX500, with its stochastic much closer to the critical 20 levels. This underperformance makes sense as the US2000 and NAS100 carry associated risk premiums and time value concerns, rendering them more sensitive to rising rates.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.