Can S&P 500 Sustain Its Post-Holiday Rally Amid Economic Uncertainty?
Thursday Market Overview
US equity markets are closed on Thursday in observance of Independence Day. On Wednesday, the S&P 500 surged to a new record, fueled by data indicating a cooling labor market, which could prompt the Federal Reserve to consider rate cuts. Tesla’s impressive Q2 vehicle deliveries helped buoy the index, offsetting declines in healthcare stocks. The index closed higher in a shortened trading session.
Technical Analysis
On the four-hour chart, the S&P 500 is in a strong uptrend, trading above its moving averages. The index recently broke out of a rectangular continuation pattern, bounded by the resistance at 5528.12 and support at 5449.52, signaling a fresh bullish phase. The RSI above 70 and the presence of small candlestick bodies suggest a potential retest of the broken resistance. However, as long as the price stays above this level, the bullish outlook targets 5576.55 and 5606.49, aligned with the classical pattern target and the 161.8% and 200% Fibonacci expansion levels, respectively.
Alternative Scenario
If the S&P 500 falls back below 5528.12, sellers might push the price towards 5498.19. A sustained break below 5449.52 would be necessary to shift the trend to bearish.
Market Overview and Key Levels
Resistance Levels:
- Resistance 2: 5606.49
- Resistance 1: 5576.55
Current Price (at the time of analysis): 5540.86
Support Levels:
- Support 1: 5528.12
- Support 2: 5498.19
- Support 3: 5449.52
Impactful Events:
The minutes from the Federal Reserve’s June policy meeting reveal that while inflation is decreasing, there is still no clear indication of a sustained downward trend in price pressures. Consequently, besides jobless claims, the wage growth data in Friday’s employment report will be crucial for investors. Strong wage growth could sustain inflationary pressures, potentially influencing the Fed’s rate decisions.
Oscillators and Risk Warnings:
RSI (Relative Strength Index): Overbought, indicating potential for a pullback.
MACD (Moving Average Convergence Divergence): Bullish, supporting the upward trend.
Moving Averages: Bullish, reflecting the positive price action.
Conclusion:
The S&P 500 is poised for further gains after breaking out of a key resistance level, supported by improving market sentiment and expectations of potential rate cuts from the Federal Reserve. As long as the index remains above 5528.12, the outlook remains bullish, with targets at 5576.55 and 5606.49. However, a fall back below this level could signal a retracement towards 5498.19 and 5449.52.
Investors should closely monitor upcoming economic data, particularly Friday’s employment report, which includes wage growth figures. These will provide important insights into inflation trends and the Fed’s potential policy moves, influencing the broader market dynamics.