The markets gapped up this morning and were strong early on as the Nasdaq gained as much as 1.4% while the Russell 2000 was up 1.5% and the S&P was up nearly 1% at the highs of the day. However, the market rally faded in the middle of the day partly due to the Fed minutes that were out this afternoon which showed indecision by Fed officials on the direction of rates going forward. Most officials agreed that holding rates steady for the time being was the right call, but there were some hawks that said raising rates could be on the table if inflation remains above their target levels. Markets did seem to pull back on their statements in the minutes, but odds of future rate cuts remained relatively unchanged with the first cut of 25bps still expected at the June 17th meeting which currently sits at about a 50% chance. Even though the markets did fade significantly, they managed to rally back some into the close with the Nasdaq leading with a gain of 0.76% while the S&P logged a gain of 0.56% and the Russell 2000 also closed higher by 0.45%. The VIX settled back under $20 at $19.62, falling 3.3% for the day which was well off its lows of $18.48.
It wasn't a great finish for markets today, but it was good enough. I mentioned in yesterday's update that there was potentially bullish divergence forming on daily time frames for both the Nasdaq and S&P and that we needed to see some follow through of yesterday's reversal which we did get today. The Nasdaq broke and closed above its prior daily downtrend, but it still starts a new downtrend going into tomorrow. Resistance from this new downtrend (white) will be at about 22,750 which is essentially right where it closed at today (22,753). So it's a toss up for whether or not it will open above this level. If it does open above 22,750 then that level will act as support on a retest, and if it opens below it then it will be resistance. If there is another pullback, the next support will be at about 22,520-22,525 from its prior downtrend that it closed above today (purple). We'll need to see how it closes tomorrow to determine its next trend.
The S&P also closed above its prior downtrend but similarly to the Nasdaq, it still starts a new downtrend going into tomorrow. It's also going to be a toss up for whether it opens above this new downtrend as that key support/resistance level will be at about 6,880 - which is just below today's close of 6,881. If it does open above it then it will be support on a retest and vice versa if it opens below it. On a pullback, the next support to watch would be at about 6,838 from its prior downtrend (purple) that it closed above today. The setup is virtually identical to the Nasdaq's, and we will also have to see how it closes tomorrow to determine its next daily trend.
The Russell 2000 looks different from the S&P and Nasdaq and it actually a failed breakout today. However, because it made a higher high it now starts a new uptrend. All of its prior trends also remain intact for now and it actually got rejected at its prior uptrend resistance (purple) that I mentioned in yesterday's update which was at about 2,865. It put in a high of 2,686.76 before the afternoon reversal.
So looking at tomorrow's levels, there will be several to watch. Starting with resistances, the 2,671 area from today's failed breakout (orange) will be resistance on a retest unless it can gap above it, but that level is about 0.5% away. If it does gap above or break through it, then the next resistance will be at 2,696-2,697 which will be from both its new uptrend (white) and its prior uptrend (purple). The first support to watch on a pullback will be at 2,639 (yellow) followed by its new primary uptrend (white) at 2,630. Its prior uptrend (blue) will also be support just below that at about 2,628 and then if there is a larger sell off the next support would be from its sideways trend (orange) again at about 2,613.
