The S&P 500 Index (CME: ES) roared into 2024, looking to extend its winning streak to a remarkable ten consecutive weeks. This bullish momentum, fuelled by ebbing inflation and dovish Federal Reserve expectations, raises the question: can the rally continue, or is a pullback on the horizon?
The primary driver of the 24.7% 2023 rally was a sharp deceleration in inflation, easing pressure on corporate profits and consumer spending. This dovish tilt from the Fed, with expectations of rate cuts in 2024, further fuelled the market’s optimism.
Despite concerns about a potential recession, the US economy has shown surprising resilience. Robust job growth and strong consumer spending suggest a soft landing is still achievable, further bolstering stock market sentiment.
Technical
The 4-hour chart paints a picture of a market perched precariously on a tightrope. The S&P 500 currently trades below its 20-SMA (green line) but comfortably above its 50-SMA (blue line) and 100-SMA (orange line), indicating potential short-term pullbacks but a longer-term bullish bias. The upward-sloping 20-EMA diverging slightly from the 50-SMA and 100-SMA hints at a potential continuation of the uptrend.
The RSI, at 49.31, remains in neutral territory, suggesting neither excessive bullishness nor bearishness. The immediate resistance zone lies around 4,832.50, with a break potentially extending gains towards 4,842.25. Conversely, a dip below the 50-SMA could trigger further selling pressure below, likely bringing the 4,809.25 and 4,797.00 support levels into play in the short term.
Summary
The S&P 500 is poised for further gains in the near term, fuelled by a combination of dovish monetary policy expectations, economic resilience, and positive market sentiment. Technical indicators suggest upside potential towards the 4,832.50 resistance level, although profit-taking could emerge if the rally becomes too rapid, with the 4,809.25 support level likely to become a significant level for potential downside.
Sources:TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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