Stocks Week Ahead: Consolidation to Deepen Amid Stronger U.S. Dollar, Higher Rates
Stocks finished the week of August 11 lower as rates and the US dollar continued to climb. There isn’t expected to be much economic data this week, with retail sales being the highlight on August 15.
However, this week will be an options expiration week, likely meaning that options levels will be the dominant force. But once OPEX passes, volatility is likely to expand further next week.
The 4-week rolling rate of change for the S&P 500 shows how the market has been consolidating for some time, and this past week, we saw signs of the range diverging and widening out.
It was more obvious when looking at the Nasdaq 100. The Nasdaq 100 has seen its trading range getting smaller over the past several weeks.
However, just this past week, that trend broke sharply lower, which could serve as a sign that the recent trends of grinding higher on lower volatility have come to an end.
Perhaps more importantly, there was technical damage to the charts this week as the Nasdaq 100 gapped below an uptrend. The uptrend in the Nasdaq had been in place since the March 13 low.
This could signify a significant breakdown unless the Nasdaq can fill the gap created early this week.
Otherwise, this is a pretty bearish indication that the recent rally along the trend line is now over, and the index faces further declines, perhaps to the secondary trend line around 14,300.
Additionally, the index gapped below the 50-day moving average, another indication of a potential change in trend, trading below its 10-day exponential moving average for eight days, a sign that the short-term trend has turned bearish.
We have also witnessed something similar taking place in the XLK, which has gapped below its trend line, fallen below its 50-day moving average,
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