The major U.S. equity indices have remained in a corrective and consolidation phase for several weeks, while small-cap stocks are increasingly displaying signs of a developing downtrend. With this week's Federal Reserve interest rate decision approaching, it is hardly surprising that uncertainty surrounding the future path of monetary policy has weighed modestly on investor sentiment and equity markets in recent weeks. Should the key support levels now come under pressure and ultimately fail, the markets could be vulnerable to a more pronounced corrective move. Investors are expected to gain greater clarity following Wednesday's Fed announcement, which may provide fresh guidance for market direction in the months ahead. At present, however, high-quality bullish setups remain scarce, with only a limited number of stocks exhibiting the technical characteristics typically associated with sustainable upside potential.
Elections are coming up in Brazil in October: of the two candidates who appear to be the frontrunners, current President Lula’s lead over his main challenger, Flávio Bolsonaro, appeared to be waning according to opinion polls. The race is not yet decided, and the stakes are high, as the next president will face, among other tasks, the challenge of allaying market participants’ concerns about Brazil’s growing national debt. Based on initial market reactions, investors are responding positively to Flávio Bolsonaro’s narrowing of the gap with Lula in the polls; or, to put it another way, market participants appear to be placing their trust in a stricter fiscal policy and spending cuts than before, as well as in the possibility of lower interest rates resulting from this and less government intervention. There is still roughly one month left until the Brazilian elections, and the next president will set the course for both Brazil and the local stock market in the coming period.
Among U.S. indices, the S&P 500 and the Nasdaq have not yet broken below key support levels. In contrast, the Russell 2000 has shown signs of a structural shift in recent days. This week, the market is bracing for a Fed rate hike, which could serve as a catalyst to trigger a significant move. It’s worth paying close attention to key support levels, as a break below them could open up new shorting opportunities. Sell signals already appeared last week in the index representing the German market and in the Stoxx 600. The index tracking emerging markets made another attempt to break through the 68.75 level, but faced a decisive rejection there and ultimately turned downward with a significant gap. These market conditions are not favorable for buying, so it’s best to hold off on purchasing stocks for now.
The index’s correction may soon reach the main upward trend line, which could lead to a pivotal moment. A downside could open up below 7,500, and the upward structure could also change. However, if the price bounces off the trend line, the next resistance level after 7,813 is at 8,125.
Resistance levels: 7,813; 8,125; 8,438
Support levels: 7,188; 6,875; 6,563; 6,250; 5,938.
This situation could very well lead to another short signal, but for that to happen, the 28,906 level would have to break down. That hasn’t happened yet, but the Fed is holding its interest rate decision meeting on Wednesday this week, which could have a major impact on the markets. If the aforementioned support level is broken, we could see a short opportunity; in this case, it’s advisable to manage risk at the 29,688 level, while the downside target could be around the previous lows, near 27,344. Conversely, if the red downward trendline were to be broken to the upside, the all-time high could become attainable, and the short opportunity would be pushed back significantly.
Resistance levels: 30,469; 31,250.
Support levels: 28,906; 28,125; 27,344; 26,562.
The uptrend has also broken down, meaning the 2,969 level has now become a resistance level. We are currently seeing a trend-like decline. This movement has also brought about a structural shift, so entry points on the buy side may occur at significantly lower levels. Ideally, the index could fall as far as halfway down the previous upward wave, which could lead to a test of 2,734 or 2,656.
Resistance levels: 3,043; 3,125.
Support levels: 2,813; 2,734; 2,656; 2,578; 2,500.
The break below the 25,781 level triggered a downtrend. A gap left earlier could still halt the decline briefly, but a break below the 25,000 level could open up even more room for a decline. On the upside, 25,781 has shifted from support to resistance; traders are likely to look for short opportunities near this level. The price could fall all the way to the next natural support level at 24,218. The previous breakout point at 23,438 is also a possibility.
Resistance levels: 25,781; 26,562.
Support levels: 23,438; 22,656; 21,875; 21,093; 20,313.
A trend-based decline has begun, so it’s definitely worth waiting before buying, as the correction could last for some time. In such cases, the price could fall as far as the midpoint of the previous uptrend. This would mean that better buying opportunities could be found at or below 609 points. The red downward trendline is pushing the price lower; as long as the price remains below this line, the market may remain in a correction phase.
Resistance levels: 671.88; 687.5.
Support levels: 625; 594; 578; 562; 546.
After reaching 68.75, buying momentum stalled, and a sharp decline broke the uptrend. The current pattern could also be suitable for opening a short position. Risk could be managed by a close above 70.3. The first support level is around 62.5, while 59.38 is considered a very strong support level below that.
Resistance levels: 68.75; 71.88.
Support levels: 62.5; 59.38; 56.25; 53.13; 50.
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