Despite
good economic data like lower core inflation, stable jobless claims, lower
inflation expectations and strong consumer spending that support the
soft-landing narrative, the S&P 500 just keeps on falling with very shallow
pullbacks. One of the main reasons might be the non-stop rally in long term
yields and real yields as it makes financial conditions tighter ultimately
weighing on the stock market. The good economic data might also be interpreted
as bad news because inflation might remain higher for longer requiring more
tightening from the Fed. There’s no easy answer at the moment, so the
technicals should be more helpful.
S&P 500 Technical
Analysis – Daily Timeframe
S&P 500 Daily
On the daily chart, we can see that the S&P 500
was diverging with the
MACD right
when it was approaching the key 4628 resistance. This is
generally a sign of weakening momentum often followed by pullbacks or
reversals. In this case, we are still in the pullback territory as the S&P
500 reached the key trendline around
the 4420 level. This is where the buyers should step in more strongly with a
defined risk below the trendline to target the 4628 resistance again. The
sellers, on the other hand, will want to see the price breaking lower to pile
in even more aggressively and target the 4324 support.
S&P 500 Technical
Analysis – 4 hour Timeframe
S&P 500 4 hour
On the 4 hour chart, we can see that if we get a
bounce on the trendline, there will be a strong resistance around the 4460
level as we have the confluence of the
trendline, the previous swing low level and the Fibonacci retracement levels.
This is where the sellers are likely to pile in again with a defined risk above
the downward trendline to target a break below the major trendline. The buyers,
on the other hand, will want to see the price breaking higher to pile in even
more and extend the rally into the 4628 resistance.
S&P 500 Technical
Analysis – 1 hour Timeframe
S&P 500 1 hour
On the 1 hour chart, we can see that we
have another minor trendline which is likely to define the sentiment. In fact,
if we see a strong rejection already from this trendline and then a break below
the major one, the bearish momentum will be confirmed to be very strong, and the
sellers will have more conviction to target the 4324 support. Conversely, if
the price breaks above it, then we should see the extension towards the next
trendline where the sellers will be waiting with an even better risk to reward
setup.
Upcoming Events
The only top tier economic indicator left
is the US Jobless Claims report
scheduled for today. The market has been weak in the past days even in the face
of good data, so we might be at a point where bad data causes recessionary
fears and good data leads to higher rates expectations. It’s possible that the
market is more likely to react positively to data that it’s not too cold nor
too hot, so big deviations might be bearish either way.
See also the video below: