Last week, we saw a bit of a Christmas rally in the S&P 500, although all the gains got erased in the final couple of days. The market is all-in on the soft-landing trade with the Fed expected to cut interest rates soon, the labour market coming into better balance and the inflation rate on track to reach the 2% target by the end of the year. It’s hard for the bears to fight the current positive sentiment, especially without significant bearish catalysts, but such crowded trades are generally liable to fast unwinding in case the prevailing narrative proves to be wrong, so the bulls should be extra careful going forward.
S&P 500 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the S&P 500 is now roughly 1% away from the all-time high. This is truly incredible if we think that it happened amid many headwinds like the second most aggressive tightening in history and geopolitical attritions. From a risk management perspective, the buyers would be better off waiting for a pullback into the recent swing low around the 4700 level where we can also find the red 21 moving average for confluence.
S&P 500 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price has been trading inside a rising channel with the latest leg higher diverging with the MACD. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we should see a pullback into the lower bound of the channel where the buyers will look to lean onto to position for a rally into new all-time highs. A break below the channel and the 4700 level would invalidate the bullish setup and likely trigger a selloff into the 4548 level.
S&P 500 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the current price action with the recent fall erasing all the gains from the Christmas rally. The buyers might want to split their position in half as the price could bounce either on the lower bound of the channel or the 4700 level, where we have also the 38.2% Fibonacci retracement level for confluence. The sellers, on the other hand, will want to see the price breaking below the 4700 level to position for a drop into the 4548 level.
Upcoming Events
This week is full of key economic data which will culminate with the NFP report on Friday. We begin tomorrow with the ISM Manufacturing PMI and Job Openings and given the recent trends there could be room for disappointment. Later in the day, we will get the release of the FOMC Minutes, but it’s not expected to be market-moving given that it’s three weeks old data. On Thursday, we will have another slate of US labour market data with the release of the US ADP and Jobless Claims figures. Finally, on Friday, we conclude the week with the NFP report and the ISM Services PMI.
