After a strong reversal last week, the markets continued higher this week with the Nasdaq and S&P posting weekly gains of 2% and 1.2%, respectively. However, the Russell 2000 closed the week lower by 0.80% in the face of rising treasury yields. The 10 year treasury yield hit its highest levels since 2007 this week, breaking above 5.20%. Meanwhile the VIX finished the week pretty flat, up just 0.40%.
For next week, the biggest catalysts are going to be PCE data which will be out on Wednesday morning and will give us the latest read on inflation which has proven to be very important for the new Fed regime under Kevin Warsh after they just raised interest rates. This will be the final trading week for September, so along with this inflation data we will get the September jobs report on Friday, October 2nd, before the market opens. This will also be key for the Fed as the labor market has to be strong for them to continue to raise interest rates. For now, good news is bad as a strong jobs report would likely increase the odds of a rate hike in October.
Looking at the technical setup now, last week's failed breakdown in the Nasdaq led to a strong continued move higher this week as it gapped over last week's primary downtrend and closed well above it. This now starts a new primary uptrend for it (white) going into the next week. The problem now is that the Nasdaq will almost certainly open below (outside of) this new primary uptrend as it will be resistance around 27,650 which is about 2% away from today's close of 27,068. So barring this big 2%+ gap up on Monday, its primary uptrend will be resistance rather than support. But its previous sideways range (yellow) will be the first resistance to watch on a rally attempt around 27,475-27,500. If it breaks through this level, then its primary uptrend and its next uptrend (red) would be resistance around 27,650. So this level would be a big area to watch where those 2 trends intersect. If it does manage to break through those, the last resistance in play will be from its next uptrend (teal) at 27,825-27,850.
The S&P continued to trade within its primary uptrend (white) this week so nothing changes on a weekly time frame for it. It did get rejected near its first uptrend (yellow) this week, and this trend will again be the first resistance level to watch for next week at 7,800-7,805. If it breaks through it this time, the next uptrend (purple) will be resistance at 7,835-7,840. Finally, its primary uptrend (white) will be the last weekly resistance to watch at 7,950-7,960.
If we pullback again, the bottom end of its primary uptrend (white) would be the first support to watch at 7,490-7,495 which is over 3% away and would probably be the only support that comes into play. But, if it were to break through it, then the next uptrend (purple) will be support at 7,440-7,445 and the last weekly support (yellow) will be at 7,410-7,415.
The Russell 2000 broke below its previous primary downtrend that was started last week, but it closed back over it again (similar to last week) for a failed breakdown again. It wasn't a strong failed breakdown, and it made a lower low, so it once again starts a new primary downtrend (white). If there is a rally back next week in small caps, the only resistance that will likely come into play will be at 2,925-2,935 from both its prior uptrend (green) and its new primary downtrend (white). This would be just over 3% away and would be a big resistance level to watch where those 2 trends intersect.
While the Russell 2000 did start a new downtrend this week, it closed back over 2 of its previous downtrends (red and purple) which will now act as support on another pullback assuming it doesn't gap back below them on Monday. The first support to watch will be at 2,830 (red) which is just below today's close of 2,837. So there is risk of a gap back below it to start the week in which case it would become resistance. If it does gap or break below it, the next support (purple) will be at 2,812-2,813. Finally its new primary downtrend (white) would be the last support to watch at about 2,788.
