Below are the three main US large-cap indexes – US30 (Dow Jones Industrials), SPX500 (S&P 500), and the NAS100 (Nasdaq). Yesterday's price action on all three was remarkable. The US30 shows a Dragonfly Doji. I.e., bears pushed the price down until the day's low, then lost control to the bulls. The bulls carried the price up for the US30 to close flat for the day. The SPX500 and NAS100 are blue candles. I.e., after the bears lost control to the bulls at the day's lows for each index, bulls were rampant, and both indexes closed up for the day. If the price can close above each of the indexes' respective highs of yesterday (aqua horizontal), bulls will be showing signs of follow-through, and potential swing lows will potentially chart.
The separate stochastics will be informative here (black ellipses):
* The NAS100's stochastic on the right has already popped above the 20 level. This show of strength suggests that the bearish momentum may be waning.
* The other two indexes' stochastics still have to move up from this area of weakness.
* If they can and all three head towards the 80 levels, the swing-low scenario becomes a distinct possibility.
* The caveat is if the stochastics maintain in their lower quintiles. We regard this weakness as bearish, and the negative momentum is likely to pressure on the corresponding indexes.
Before the cash open, all three indexes moved into their respective bullish areas on the hourly charts, between the upper blue and red bands. If their corresponding stochastics can move above 80 and hold (green rectangles), it will indicate an underlying bullish momentum. There is still a tremendous amount of uncertainty concerning geopolitical risk and Russia's invasion of Ukraine. Moreover, higher interest rates are likely to impact present values this year, besides any added risk premiums. However, the current sentiment as per the remarkable price action yesterday and the short-term sentiment do point to a bullish open. If the stochastics cannot reach 80, or they hit 80 and then promptly fall, the pre-open positivity may fade. This decline would be a bearish development.
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.