The S&P 500 Index (CME: ES) is poised to extend its winning streak, potentially logging a sixth consecutive session of gains and a third consecutive week in the green. This bullish momentum is fueled by renewed hopes of a dovish pivot by the Federal Reserve. Disappointing US jobless claims data, showing a rise to the highest level since August 2023, has reinforced market expectations for potential rate cuts later this year. This dovish shift, contrasting with the hawkish stance maintained by several Fed policymakers, is creating a risk-on environment.
However, some analysts remain cautious, suggesting that one week of data may not be enough to sway the Fed from its current wait-and-see approach. Additionally, key economic data releases next week, including US PPI and CPI figures, will provide further clarity on inflationary pressures and potentially influence the Fed’s monetary policy trajectory.
Technical Analysis
The 4-hour chart shows the S&P 500 Index is currently trading slightly higher, with the bulls firmly in control. The price action sits comfortably above 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line), with the 20-SMA positioned above the 50-SMA and 100-SMA in a bullish configuration. This suggests a positive short-term trend.
The RSI currently sits at 79.32, indicating overbought conditions. While this could signal a potential pullback, the overall technical structure favours the bulls. A sustained push higher could see the index target the 5,284.50 resistance level. A decisive break above this level, accompanied by strong trading volume, could open the door for a test of the all-time high at 5,333.50.
However, if the bulls fail to maintain momentum and the RSI dips, bears could attempt to retest the 5,177.25 support level. A significant break below this level, accompanied by increased selling volume, could expose the 5,124.25 and 5,079.25 support levels in the short term.
Summary
The S&P 500 Index is likely to extend its short-term rally in the absence of hawkish surprises from the Federal Reserve. The technical outlook remains bullish, with the potential for a test of the 5,284.50 resistance level in the near term. However, overbought RSI readings caution of a potential pullback towards the 5,177.25 support level if bullish momentum wanes.
Sources: TradingView, Trading Economics, Reuters, MT Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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