Wall Street rallied, but how far can it go?

US stocks rallied yesterday

On Wednesday, the stock market had a positive trading session.

The major indexes have closed as follows: the S&P 500 gained 1.49%, the Nasdaq went up 1.54% and Dow Jones closed at +1.60%.

The market rally has been driven by the revived consumer sentiment report for the month of December, which has shown the highest data since April.

The positive data of the consumer sentiment report has been led by the reduction of inflation.

So, we are closing the year with some good news: consumer sentiment is getting higher and inflation is slowing down.

Regarding the real estate sector, instead, the data issued yesterday on existing home sales have shown a persistent 10-month decline.

S&P 500 Technical Analysis - Daily Chart


The S&P 500 index jumped yesterday, closing the day just below the 50-day MA (red moving average).

Today, the price is falling slightly, indicating a possible rejection at the 50-day MA.

If that is confirmed today, the price could retest the support at around 3800.

If that support will not hold, it's likely that the index will fall further and test the next support level at around 3700.

On the other side, the upside potential is very limited at the moment since there are many resistance levels for the price (all the major moving averages and the 3900 level).

The overall trend for the S&P 500 index is still bearish and this recent rally might be just a pause before the continuation to the downside.

The RSI rose slightly to 45, still indicating a bearish trend.

Overall, the index price could fall further in the upcoming days, until it reaches the oversold condition on the RSI.

Dow Jones Technical Analysis - Daily Chart


The Dow Jones Index is showing a bullish picture, as opposed to the bearish conditions of the S&P 500.

This index is in fact trading above all major moving averages, especially the 200-day MA (green moving average) and the 50-day MA (red moving average).

The price also bounced recently at the 32600 level, which acted as strong support.

It's likely that we could see a test of the 21-day MA (blue moving average).

A break above this level would open the possibility of further upside to the next resistance level of 34800.

A failed test of the 21-day MA would mean, instead, a likely retest of the support area between 32400 and 32900.

The RSI stands at 49, indicating a neutral trend.

The Dow Jones index has also completed a golden cross recently.

This happens when the 50-day MA moves above the 200-day MA.

This is a bullish sign for the short term.

If the Dow acts as a leading index for the overall US stock market, we could expect also the S&P 500 and the Nasdaq indices to mirror the price movements of the Dow Jones in the upcoming days.

Therefore, watch closely the price action of this index for clues on the next market direction.

Nasdaq Technical Analysis - Daily Chart


The Nasdaq Index chart looks very similar to the S&P 500 chart.

The index is also trading below all key moving averages and the price might find a lot of resistance to the upside, from the 11400 level and above.

The next support on the downside is likely the horizontal line at around 11700.

The overall trend for the Nasdaq index is also bearish.

The RSI stands at 42, confirming the bearish trend.

US Dollar Index Technical Analysis - Daily Chart


The US Dollar Index is also another chart to look at, in order to understand the next direction of the market.

The Index started the downtrend after reaching the local top on 28 September 2022.

However, it seems that is finding support at the key level of 103.46.

A break below this level would mean a sell-off of the dollar, and a positive performance on the stock market.

On the other hand, if the index is able to hold the support, it will have to break above the resistance level of 104.70, which is both the horizontal line and the 21-day MA (blue moving average), and afterwards the 200-day MA (green moving average).

A break above those resistance levels would mean a rally in the dollar index and a further downside in the stock market.

Therefore, watch also this index for clues on the next market direction.

Sentiment Indicator - Fear & Greed Index

The market sentiment is at 38 in the "Fear" mode which is at the same level as the past two days.

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