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In this week's dissector column we analyse the two US benchmarks, Dow Jones Industrial Average and S&P 500.
The National Stock Exchange has recently launched futures in these two indices that enable Indian investors to take positions based on their reading of the US market.
Dow Jones Industrial Average (DJIA) which is popularly called the Dow is the second oldest US market index next to the Dow Jones Transportation Average. The S&P 500 (Standard & Poor's 500) is the Dow's more broad-based counter-part.
Tracking the Dow
The Dow bottomed out in first quarter of 2009 from the low of 6,469 and has been on a long-term uptrend since then. Following a corrective downtrend, the index took support around the important long-term base level at 10,650 in October 2011.
Subsequently, the uptrend accelerated. As long as the DJIA trades above its long-term support band between 11,900 and 12,000, its intermediate-term trend remains up.
Long-term uptrend will stay in place as long as the index hovers above 9,900 level. Strong rally above the key resistance level at 13,625 will strengthen the long-term uptrend and lift the index higher to 13,900 and 14,198. Significant long-term supports to watch are 11,900-12,000 band, 11,500 and 11,200 levels.
Medium-term view
The US Dow Jones added 65 points or 0.5 per cent to close at 13,029 on Friday. After encountering resistance around 13,000-mark in the first week of this month, the index started losing its bullish momentum. It declined further, triggered by negative divergence in daily moving average convergence divergence indicator.
The index is likely to move sideways between 12,710 and 13,300 for some more time.
A strong decline below the immediate support level at 12,710 can pull the index down to 12,600 and then to 12,500 in the ensuing weeks. But only a strong weekly close below 12,500 can change the medium-term view to negative and pull the index further down to 12,200.
On the other hand, decisive breakthrough of the immediate resistance level at 13,300 can accelerate the index higher to 13,625 in the medium-term.
Dow futures
The near-month DJIA index futures traded on NSE closed at 13,005, down 65 points or 0.5 per cent on Friday.
This contract has been on a sideways movement from early March, broadly in the range between 12,775 and 13,250. As long as the contract trades within this range, its short-term trend remains sideways.
Downward breakthrough of 12,775 will pave way for a decline to 12,600 which is next key support level.
S&P 500 Index & futures
S&P 500 Index also changed direction in the first quarter of 2009 from 666 levels. Since then it has been on a long-term uptrend, forming higher peak and troughs.
In October 2011, the S&P 500 Index, took support around 1,100 and resumed its long-term uptrend. Intermediate-term trend is also up for the index. This intermediate-term uptrend will remain in place as long as the index trades above its long-term support range between 1,250 and 1,270.
Long-term trend will turn negative only if the index declines below 1,050. The index has important long-term resistance in the zone between 1,440 and 1,450. An emphatic rally above this resistance will reinforce bullish momentum and take the index higher to 1,500 and to 1,550 in the long-term. Key supports for the index are positioned at 1,250-1,270 band, 1,150 and 1,050.
The S&P 500 increased marginally 1.6 points or 0.12 per cent on Friday to close at 1,378.5. Medium-term trend is up for the index. However, after hitting resistance at around 1,420 in early April, the index began to decline, triggered by negative divergence in daily relative strength index and moving average convergence divergence indicator.
A fall below the immediate short-term support at 1,358 will pull the index down to 1,340 and 1,310 in the weeks ahead. Key resistances are at 1,400 and 1,420. Conclusive breakthrough of 1,420 can take the index northwards to 1,450 in the medium-term.
The near-month S&P 500 index futures slipped nine points or 0.6 per cent to end at 1,381 on Friday. This contract is also moving sideways from early March this year, in the range between 1,363 and 1,420.
The near-term stance will be sideways as long as the contract trades within the aforementioned range. A decline below 1,363 will pull the S&P 500 index futures down to 1,340 and then to 1,300-1,310 range in the medium term.
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