TA of the day: Is the S&P 500 poised to rally again after falling?

The S&P 500 It took a break on Monday and fell on Monday after the fairy dust of the rise sprinkled on markets by two prominent central bankers last week began to settle.

Last Friday, Federal Reserve Chairman Jerome Powell and Bank of Japan Governor Ueda made comments that sent bullish vibes through the markets, sending stocks higher.

Ueda’s Dovish Tone

Ueda confirmed that the BOJ will continue with policy normalization if inflation is trending steady at 2%.

He told the Japanese Parliament that while interest rates will trend higher over time, he will take into account the markets’ reactions to rising rates in setting policy.

That eliminates the possibility of a repeat of the messy relaunch in yen trading earlier this month, which sent Japanese (and global) stocks plummeting, reducing market risk.

Powell’s promises

Powell was wiser than expected.

He 1) promised interest rate cuts in September and 2) hinted at a 50 basis point cut or perhaps even more aggressive cuts later, all while assuring us that the Fed won’t “get” no further increase in unemployment.

Short term perspective

Ueda and Powell have effectively removed two of the main reasons why stocks fell sharply in August: worries about the yen trading and fears that the Fed will not cut interest rates quickly enough.

With those out of the way, the near-term outlook for stocks looks a lot rosier, making it easier for the S&P 500 to continue climbing.

Remaining risks

Despite the improved near-term outlook, there are still risks that could see the rally run out of steam: The two main risks are:

1. Growth retardation: If growth slows more than expected, stocks will fall, and Fed rate cuts won’t be able to stop it. Rising recession fears remain the biggest threat to US stock market bulls.
2. Fed rate cut disappointment: The market has already priced in aggressive rate cuts. If the Fed cuts rates more gradually than expected, it will cause near-term disappointment.

The economic calendar is relatively light this week, and the week leading up to the Labor Day holiday is usually a sleepover in the markets as everyone scrambles to squeeze in one last beach day.

However, there are some key economic data on growth and inflation to watch that could further influence market direction.

If you are a Premium subscriber, be sure to read “The week before in FX” report to see which specific events to focus on.

If future data confirms that inflation is falling and growth is steady, don’t be surprised if the S&P 500 hits a new high. Otherwise, be prepared for an increase in volatility to the downside.

Nvidia (NVDA) also reports earnings on Wednesday. Given its substantial weighting in the index, its performance can affect the overall direction of the S&P 500. If their earnings disappoint, watch out!

With these potential event risks in mind, let’s see what the technicians are saying about the S&P 500

Welcome to TA of the Day (TAOTD)! 👋

Let’s focus on the current technical setup of the S&P 500 based on the 4-hour chart:

📈 Technical Analysis of the SPX 4 Hour Chart

Did you know? There are several ways to trade the S&P 500. In the US, you can trade futures or ETFs that track the S&P 500, such as Vanguard’s VFIAX or SPDR’s SPY. Outside the US, you can trade S&P 500 CFDs, which allow for leveraged exposure without owning the underlying assets.

Let’s analyze S&P 500 using key technical analysis concepts covered in our forex course.

Simple Moving Averages (SMA):

• 10 period SMA: Positioned around 5,606. The price is currently easy above this level, indicating bullish momentum in the short term. The up the slope confirms recent short-term buying activity.
• 50 period SMA: Positioned around 5,456. The price is comfortable above this level, strengthening the medium-term optimistic trend. The slope is upindicating sustained power.
• 100 period SMA: Positioned around 5,491. The price remains above this level, confirming the medium-term optimistic momentum. The up the slope supports the continuation of the upward trend.
• 200 period SMA: Positioned around 5,346. The price is good above this level, indicating strong bullish long-term momentum. The up the slope confirms that the long-term trend remains intact.

Relative positioning of mobile media:

• The 10-period SMA is currently above 50, 100 and 200 period SMAs, signaling a short-term bullish trend in a broader bullish context.
• The 50 period SMA is also above 100 and 200 period SMAs, stating bullish pressure continues on all timeframes.

Relative Resistance Index (RSI):

• The RSI is currently at 63, indicating that the market is in bullish territory, but not overbought.
• This suggests that there is still room for further upside before encountering significant resistance.

🕵️ Key observations

Price action:

Let’s analyze the recent SPX (S&P 500) price action based on the chart:

1. Strong Uptrend: The most notable feature is the strong upward trend, particularly evident since mid-August.
2. Sharp Rally: There has been a sharp, almost vertical rise from mid-August lows around 5,120 to current levels above 5,600.
3. Trend acceleration: The uptrend accelerated considerably after August 5, showing increased bullish momentum compared to previous months.
4. Bullish candles: The recent price action is characterized by a series of ascending candles (green), indicating strong buying pressure.
5. Recent Consolidation: In the most recent candles, there is a sign of short-term consolidation or a minor pullback from the recent high of 5,651.

Support and resistance levels:

• Support: Immediate support is at the 10-period SMA (5,606) and 50-period SMA (5,456).
• Resistance: Psychological resistance is near the 5,650 level.

🤔 Potential commercial scenarios

Is the S&P 500 a buy or a sell?

Long bias:

The following business scenarios are provided for educational purposes only. As they do not include complete risk management practices, they are not intended to serve as actual trading recommendations, but only food for thought to help you generate your own trading idea.

• Point of consideration: Consider entering a long position if the price finds support near the 10-period SMA at 5,606 or on a pullback to the 50-period SMA around 5,456. A break above the 5,650 level could also provide a buying opportunity.
• Invalidation point: Consider setting a stop-loss below the 50-period SMA at around 5,450 to manage risk.
• Potential target: Look for a move to 5,670 or new all-time highs if the uptrend continues.

Motivation: Strong momentum and rising position above all major SMAs suggest further upside potential. However, caution is advised near the 5,650 resistance.

Short bias:

• Point of consideration: Consider entering a short position if the price shows signs of rejection around the 5,620 resistance level or if there is a bearish divergence in the RSI.
• Invalidation point: Consider setting a stop-loss above the recent high of around 5,651 to manage risk.
• Potential target: The initial target could be the 10-period SMA at 5,606, with further downside potential towards the 50-period SMA at 5,456.

Motivation: Potential resistance at 5,650 suggests a possible short-term pullback or consolidation. A rejection at this level could signal a near-term reversal.

📝 Summary of TAOTD

• Current position: The price has been in a clear uptrend characterized by higher highs and higher lows. Recent price action shows a steady rise from the 5,200 level to above 5,600.
• Optimistic feeling: This recent price action suggests very strong bullish sentiment in the S&P 500.
• Resistance testing: The price is currently close to the psychological resistance at the 5,650 level, which could act as a significant short-term barrier.
• Short-term assistance: 10-period SMA at 5,606 provides immediate support and 50-period SMA at 5,456 provides further support below.
• Healthy moose: RSI indicates ongoing bullish momentum with room for further upside before reaching overbought conditions.

This market structure suggests that the S&P 500 is in a robust state the optimistic phase.

The alignment of all technical factors (price action, moving averages, momentum indicators) supports this bullish view.

The quick rebound on August 5 with relatively small pullbacks confirms this strong buying pressure.

However, slight hesitation at current levels could suggest a short break or the potential for minor correction.

Key levels to watch are the psychological resistance of 5,650 above and the support area of ​​5,600 below. A break above 5,650 could lead to further gains, while a break below the 10 SMA could signal a short-term pullback.

Overall, recent price action paints a picture of a a strong momentum-driven rally in the S&P 500with without clear signs of exhaustion still evident on the chart, but showing some signs of potential short-term consolidation.

The overall structure remains optimistic as long as a series of higher lows is maintained and the price remains above key moving averages.