The S&P 500 Index (CME: ES) is basking in the warm glow of a “soft landing” narrative, extending its winning streak to five weeks and closing above the 5,000 mark for the first time. This optimism stems mainly from a confluence of economic data, including the tame inflation. December’s CPI was revised downward, and January’s reading is expected to moderate further to 3%, the lowest since June 2023. This could ease pressure on the Fed for aggressive rate hikes, potentially leading to cuts later in the year.
Recent data suggests the US economy remains strong, with solid retail sales and continued job growth. This economic resilience could fuel further corporate earnings growth, a key driver of the stock market. Lastly, large-cap tech companies like Alphabet and Amazon are on the rise, powering the Nasdaq and boosting the broader market. This sector’s strength reflects investor confidence in its future growth potential.
However, even with moderation, inflation is still above the Fed’s target, and any surprises in the upcoming CPI report, due on Tuesday, 13 February, could spark renewed worries.
Technical
The 4-hour chart shows that the S&P 500 opened the week flat at 5,042.00, consolidating within a rising wedge pattern, with the price action firmly trading above the supportive 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line), indicating a bullish trend. However, the RSI sits at the overbought territory (78.31), suggesting potential for a pullback before further advance.
Short-term trading opportunities could exist towards the 5,061.25 resistance level should the price action sustain its push higher. A break above the initial resistance would leave the coveted 5,100.00 resistance level as the next significant barrier higher.
Conversely, a break below the wedge could offer short-term trading opportunities towards the initial support at 5,004.25. A break below the initial support would bring the 4,957.00 and 4,924.75 support levels into play in the short term.
Summary
The S&P 500 faces a pivotal week, balancing positive fundamentals with lingering uncertainties. Technical analysis suggests the potential for further upside towards 5,100.00, but caution is warranted due to overbought RSI and upcoming data releases, including the US CPI.
Sources: TradingView, Trading Economics, Dow Jones Newswire, CNBC, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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