TA of the Day: Is the S&P 500 Set to Resume Its Rally After Edging Lower?

the Standard & Poor’s 500 Saudi Arabia’s stock market took a breather and fell slightly on Monday after the cloud of bullish magic that two prominent central bankers sprayed on markets last week began to subside.

Last Friday, Federal Reserve Chairman Jerome Powell and Bank of Japan Governor Ueda made comments that sent bullish sentiment through the markets, sending stocks higher.

Oida’s dovish tone

Ueda stressed that the Bank of Japan will continue to normalize monetary policy if inflation moves towards a stable level of 2%.

He told Japan’s parliament that while interest rates would trend higher over time, he would take into account market reactions to rate hikes when setting policy.

This removes the possibility of a repeat of the disorderly yen sell-off that occurred earlier this month, which sent Japanese (and global) stocks tumbling like a rock, reducing risk in the market.

Powell’s promises

Powell was more pessimistic than expected.

He has 1) promised to cut rates in September, and 2) hinted at a 50 basis point cut or perhaps more aggressive cuts later, all while reassuring us that the Fed will not “welcome” any further increases in unemployment.

Near-term outlook

Essentially, Ueda and Powell dismissed two of the main reasons stocks fell sharply in August: concerns about the yen trade and fears that the Federal Reserve was not cutting interest rates fast enough.

With these things in place, the near-term outlook for stocks looks more optimistic, making it easier for the S&P 500 to continue rising.

Residual risks

Despite the improved near-term outlook, there are still risks that could see this rally fade: The main risks are:

1. Slowing growth: If growth slows more than expected, stocks will fall, and the Fed’s rate cuts won’t be able to stop them. Growing recession fears remain the biggest threat to bulls in the U.S. stock market.
2. Disappointment over Fed rate cuts: The market has already priced in aggressive rate cuts, and if the Fed cuts rates more gradually than expected, it will cause short-term disappointment.

The economic calendar is relatively light this week, and the week leading up to Labor Day is usually a festival of laziness in the markets, as everyone strives to get one last day at the beach.

However, there are a few key economic data releases to watch regarding growth and inflation that could still influence the market direction.

If you are a premium subscriber, be sure to read theNext week in the Forex marketA report to know which specific events to focus on.

If incoming data confirms that inflation is falling and growth is stable, don’t be surprised if the S&P 500 hits a new high. Otherwise, prepare for a sharp increase in downside volatility.

Nvidia (NVDA) will also report earnings on Wednesday. Given its heavy weight in the index, its performance could impact the overall direction of the S&P 500. If its earnings disappoint, watch out!

With these potential event risks in mind, let’s see what the technical indicators are saying about the S&P 500.

Welcome to Teaching Assistant of the Day (TAOTD)! 👋

Let’s focus on the current technical setup of Standard & Poor’s 500 Based on the 4-hour chart:

📈 SPX Technical Analysis on 4-hour chart

Did you know? There are several ways to trade the S&P 500. In the US, you can trade futures or ETFs that track the S&P 500, such as Vanguard’s VFIAX or SPDR’s SPY. Outside the US, you can trade CFDs on the S&P 500, which allow leveraged exposure without owning the underlying assets.

Let’s analyze S&P 500 Index Using the basic technical analysis concepts we covered in our Forex course.

Simple Moving Averages (SMAs):

• 10 period simple moving averageIt is located at level 5,606. The price is currently a little high. above This level indicates a continuation of the short-term bullish momentum. To the top The slope confirms recent short-term buying activity.
• 50 period simple moving averageLocated at 5,456. The price is comfortable. above This level, which reinforces the medium-term uptrend. The slope is To the topindicating sustained strength.
• 100 period simple moving average:Located at 5,491. Price remains flat above This level confirms the medium-term bullish momentum. To the top The slope supports the continuation of the upward trend.
• 200 period simple moving averageLocated at 5,346. Good price. above This level indicates strong long-term bullish momentum. To the top The slope confirms that the long-term trend is still intact.

Relative position of moving averages:

• The 10 period simple moving average is currently above The 50, 100, and 200 period simple moving averages indicate a strong short-term uptrend within a broader bullish context.
• The 50-period simple moving average is also above The 100 and 200 period simple moving averages confirm the continuation of the upward pressure across all time frames.

Relative Strength Index (RSI):

• The RSI is currently at 63, indicating that the market is in a bullish zone but not in the overbought zone.
• This suggests that there is still room for further upward movement before encountering significant resistance.

🕵️ Key Notes

Price action:

Let’s analyze the recent price action of the SPX (S&P 500) based on the chart:

1. Strong uptrend: The most notable feature is the strong upward trend, which has become particularly evident since mid-August.
2. sharp rise: We have seen a sharp and almost vertical rise from the mid-August lows around 5,120 to current levels above 5,600.
3. Acceleration trend: The upward trend accelerated significantly after August 5, indicating increased bullish momentum compared to previous months.
4. Bullish candles: The recent price action is marked by a series of bullish (green) candles, indicating strong buying pressure.
5. The last unification: In the more recent candles, there is an indication of a short-term consolidation or a slight pullback from the recent high at 5,651.

Support and resistance levels:

• SupportsImmediate support is found at the 10-period SMA (5,606) and the 50-period SMA (5,456).
• resistancePsychological resistance is near the 5,650 level.

🤔 Possible trade scenarios

He is S&P 500 Index Buy or Sell?

Long bias:

The following trading scenarios are provided for educational purposes only. Since they do not include full risk management practices, they are not intended to serve as actual trading recommendations, but rather as food for thought to help you generate your own trading idea.

• Point of ConsiderationConsider entering a long position if the price finds support near the 10-period simple moving average at 5,606 or on a pullback to the 50-period simple moving average at around 5,456. A break above the 5,650 level could also provide a buying opportunity.
• Point of cancellationConsider setting a stop loss below the 50 period simple moving average at around 5450 to manage risk.
• potential targetWe expect a move towards 5,670 or new all-time highs if the uptrend continues.

RationaleStrong bullish momentum and position above all major simple moving averages suggest further upside potential. However, caution should be exercised near the resistance level at 5,650.

Short bias:

• Point of ConsiderationConsider entering a sell trade if the price shows signs of rejection around the resistance level of 5,620 or if there is a bearish divergence in the RSI.
• Point of cancellationConsider setting a stop loss above the recent high at around 5,651 to manage risk.
• potential targetThe initial target could be the 10-period SMA at 5,606, with a further decline towards the 50-period SMA at 5,456.

Rationale:Possible resistance at 5,650 indicates a possible short-term pullback or consolidation. Rejection at this level may indicate a short-term reversal.

📝 TAOTD Summary

• Current positionThe price has been in a clear uptrend, characterized by higher highs and higher lows. The recent price action shows a steady rise from the 5200 level to above 5600.
• Bullish sentiment: Recent price action indicates very strong bullish sentiment in the S&P 500.
• Resistance testThe price is currently near the psychological resistance at the 5,650 level, which may act as a major barrier in the short term.
• Short term supportThe 10-period simple moving average at 5,606 provides immediate support, with the 50-period simple moving average at 5,456 providing additional support below.
• healthy momentumThe RSI indicates continued bullish momentum, with room for further upside before reaching overbought conditions.

This market structure suggests that the S&P 500 is in a strong position. Ascending phase.

the Align all technical factors (Price action, moving averages, momentum indicators) support this bullish view.

The rapid recovery from August 5 with relatively small pullbacks confirms this. Strong buying pressure.

However, the slight hesitation at current levels may indicate that short term stop Or the possibility of a simple correction.

Main levels It is important to watch the psychological resistance level of 5,650 above, and the support area of ​​5,600 below. A break above 5,650 could lead to further gains, while a drop below the 10-day SMA could signal a short-term pullback.

Overall, the recent price action paints a picture of Strong momentum-driven rally in S&P 500with No obvious signs of fatigue This is still evident on the chart, but it shows some signs of potential consolidation in the short term.

The overall structure remains bullish as long as A series of higher lows is maintained. And the The price remains above the major moving averages..