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
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
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
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: