Stock market bulls seem to be hitting the pause button on the S&P 500’s climb.
Does this mean that a selloff is in order?
Here’s the reversal confirmation zone I’m watching on the 4-hour chart.
S&P 500 Index (SPX500) 4-hour Chart by TV
This equity index made a couple of failed attempts to break past the 4,800 mark and is back down to testing support at 4,700.
Risk-off flows and pro-dollar moves are returning to the markets, following an upside ADP jobs report surprise. After all, this could mean that the NFP might beat estimates once again, dashing hopes of a U.S. interest rate cut soon.
Remember that directional biases and volatility conditions in market price are typically driven by fundamentals. If you haven’t yet done your fundie homework on the stock market and the U.S. dollar, then it’s time to check out the economic calendar and stay updated on daily fundamental news!
Or if you just got back to your trading desk after the holidays, you can also check out our 2024 FX Outlook to see what you can expect for the year ahead.
A break below the double top neckline near the pivot point level (4,701.89) could set off a drop that’s at least the same height as the chart formation.
Either that or the S&P 500 index could set its sights on the downside targets at S1 (4,677.99), S2 (4,663.69) then S3 (4,639.79) if bearish momentum picks up.
For now, technical indicators are suggesting that buyers have the upper hand. The 100 SMA is still above the 200 SMA to reflect bullish vibes while Stochastic is in the oversold region to signal exhaustion among sellers.
If the oscillator turns higher to indicate that buying pressure is returning, the stock index could resume the rally to the upside targets at R2 (4,740.09) then R3 (4,754.39) or even test the latest highs.
Better keep an eye out for the next major U.S. catalyst (December 2023 NFP report) when trading this one!