This first half of the week was highlighted by big misses in the US economic data like Job Openings, Consumer Confidence and ADP. These might be the first signs that a recession is indeed on the horizon as the labour market is starting to show weakness. In fact, the market is no longer seeing the Fed hiking interest rates as the September and November probabilities dropped further and the rate cut expectations were brought forward. Nonetheless, despite the worrying data, the S&P 500 rallied strongly as if nothing bad happened at all. There could be different reasons that range from a relief rally due to dovish expectations and lower yields or the market interpreting the softer labour market readings as good news for inflation going forward. Until we see more data, the technicals will help in managing the risk and in identifying the most probable market directions.
S&P 500 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the S&P 500 bounced near the key support at 4324 and extended the rally above the red 21 moving average and the resistance at 4494. This is a very strong move which was not supported by the fundamentals, so something else must be brewing. In any case, this breakout is a bullish signal, and we might see more higher highs going forward unless the price falls back below the 4494 resistance turned support leaving behind a fakeout.
S&P 500 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that after the breakout, the bullish momentum waned and the price seems to be struggling around the 61.8% Fibonacci retracement level. This might be a signal that a pullback is due, and the most probable support is of course the 4494 area.
S&P 500 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a divergence with the MACD right at the 61.8% Fibonacci retracement level. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we should see the price pulling back into the upward trendline where we have the confluence of the support and the 38.2% Fibonacci retracement level. This is where the buyers are likely to pile in with a defined risk below the trendline and target the 4634 high. The sellers, on the other hand, will want to see the price breaking lower to confirm a reversal and position for new lower lows.
Upcoming Events
This week is all about the US labour market data and the recent releases haven’t been encouraging on a forward-looking basis. Today, the main event will be the US Jobless Claims report accompanied by the US PCE data. Tomorrow, we conclude the week with the US NFP and ISM Manufacturing PMI reports. It’s hard to see the S&P 500 climbing even if the data misses as the signals for a recession are accumulating, but the stock market always finds ways to surprise even in the face of economic problems.
See also the video below