The S&P 500 Index (CME: ES) is currently enjoying a positive outlook, backed by several fundamental tailwinds. The index is on a two-week winning streak, buoyed by in-line US inflation data and expectations of a potential Fed rate cut in June. The PCE price index, the Fed’s preferred gauge of inflation, rose 0.3% month-over-month in January, aligning with expectations and easing concerns about aggressive rate hikes. Additionally, comments from Atlanta Fed President Raphael Bostic and Chicago Fed President Austan Goolsbee, both voting members this year, reinforced the possibility of rate cuts later in 2024, further supporting the market’s bullish sentiment.
Furthermore, positive sentiment surrounding the technology sector, particularly those associated with Artificial Intelligence (AI), continues to fuel the market rally. Heavyweight chipmaker Nvidia and its smaller rival AMD surged on Thursday, contributing significantly to the index’s gains. This sector focus aligns with the broader market narrative of economic optimism and growth potential in the tech space.
Technical
The 4-hour chart of the S&P 500 Index reveals a clear bullish bias. Currently trading at 5,114.25, the index’s price action is comfortably positioned above the 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line), indicating sustained upward momentum. The recent crossover of the 20-SMA above the 50-SMA, coupled with an upward-sloping 100-SMA, underscores the strength of the current rally. The RSI, standing at 62.16, remains above the midpoint level of 50.00, suggesting that buying pressure prevails.
Short-term trading opportunities might exist towards the all-time high of 5,123.50 if the bullish momentum persists. A break above this resistance level could open the door towards the 23.60% Fibonacci extension level (5,149.00) and even the 50.00% Fibonacci extension level (5,177.75).
However, if the price action loses momentum and falls below the 20-SMA, it could find support at the 23.60% Fibonacci retracement level (5,084.75). A significant break below this level, coupled with high trading volume, could bring the 50.00% and 61.80% Fibonacci retracement levels (5,041.25 and 5,021.75) into play, signalling a potential trend reversal.
Summary
The S&P 500’s outlook remains positive in the short term, supported by both fundamental and technical factors. The index is likely to continue its upward trajectory towards an all-time high in the near future, with potential resistance at 5,123.50. However, a break below the 23.60% Fibonacci retracement level, accompanied by significant volume, could indicate a short-term pullback.
Sources: TradingView, Trading Economics, CNBC, Dow Jones Newswire, Reuters, Bureau of Economic Analysis.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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