The S&P 500 Index (CME: ES) has enjoyed a stellar run, closing four consecutive weeks in positive territory and reaching a new all-time high last week. This bullish momentum coincides with a recent slowdown in US inflation, easing to 3.4% in April – a lower-than-expected print that fueled risk-on sentiment. Additionally, strong corporate earnings and growing expectations of Federal Reserve rate cuts in September have bolstered investor confidence.
However, some uncertainties linger. The dissonance among Fed officials regarding the pace of future rate hikes and the mixed bag of economic data, with strong PPI countered by stagnant retail sales, could introduce volatility. Investors will be closely monitoring the release of the Fed meeting minutes this week for further guidance.
Technical Analysis
The 4-hour chart shows the index is currently trading slightly higher, mirroring the positive sentiment in the broader market. The price action sits comfortably above the key moving averages (SMAs) – the 20-SMA (green), 50-SMA (blue), and 100-SMA (orange) – with the 20-SMA positioned above the other two, reinforcing the uptrend.
This bullish technical posture suggests a potential for further gains. A sustained push higher could present short-term trading opportunities towards the recently established all-time high of 5,349.00. A decisive break above this level on significant volume could open the doors to the 23.60% Fibonacci extension level (5,402.75) and even the 38.20% Fibonacci extension level (5,435.25).
However, the RSI (Relative Strength Index) hovering near 68.67 indicates overbought conditions, potentially leading to a retracement. Should the index fail to maintain its upward momentum, the 5,284.50 level becomes a crucial support zone. A significant break below this level, accompanied by high volume, could signal a bearish reversal, with the 5,194.75 and 5,124.25 support levels potentially coming into play.
Summary
The S&P 500 Index (ES) displays a strong technical outlook, bolstered by a recent record high and positive domestic economic data. The recent inflation data and a strong earnings season paint a rosy picture. However, the overbought RSI and the upcoming Fed meeting minutes warrant caution.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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