The S&P 500 Index (CME: ES) is currently on an upward trajectory, with the index on course for its eighth winning session in nine. This bullish sentiment comes amidst anticipation of key US inflation data due later this week, which will be instrumental in shaping investor expectations for the Federal Reserve’s monetary policy path.
While a strong earnings season provided initial support, comments from several Fed officials advocating for a cautious stance on interest rate cuts have tempered market enthusiasm. Inflation remains a key concern, with April’s Consumer Price Index (CPI) print expected to be a crucial data point for the Fed.
Although Fed Chair Jerome Powell downplayed the likelihood of a rate hike in the near future, a hotter-than-expected inflation report could prompt a reassessment by the central bank, potentially leading to a shift in market sentiment.
Technical Analysis
The 4-hour chart shows the S&P 500 Index is currently trading slightly higher, bolstered by a bullish technical posture. The price action sits comfortably above the key moving averages, with the 20-SMA positioned above both the 50-SMA and 100-SMA. This ascending configuration of moving averages indicates a strong uptrend. Additionally, the index is trading near its recent highs, suggesting continued buying pressure.
The Relative Strength Index (RSI) currently sits at 68.72, nearing overbought territory. This could indicate a potential pause or pullback in the uptrend, as the indicator suggests the market may be stretched in the short term. However, a sustained push higher, particularly on strong volume, could see the index challenge the resistance level at 5,284.50. A decisive break above this level, coupled with high volume, could pave the way for a test of the all-time high at 5,333.50.
Conversely, a failure to maintain the upward momentum and a decline below the immediate support level at 5,177.25, especially on significant volume, could embolden the bears. A confirmed breakdown through this level could bring the 5,124.25 and 5,079.25 support levels into play in the near term.
Summary
Investor sentiment surrounding the S&P 500 Index remains cautiously optimistic, with the positive earnings season and the prospect of continued economic growth fueling the current uptrend. However, looming inflation concerns and the Fed’s policy stance add a layer of uncertainty. A decisive break above the resistance at 5,284.50 could signal a continuation of the uptrend, while a breakdown below 5,177.25 could indicate a potential short-term pullback.
Sources: TradingView, Trading Economics, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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