S&P 500 Ekes Out Modest Gain Ahead of US CPI Data but Double Top Still in Play

S&P 500 Prediction:

• Standard & Poor’s 500 It is rising but gains are modest amid a cautious mood ahead of key US economic data
• June United States economic inflation The release will steal the spotlight on Wednesday
• Higher-than-expected CPI numbers could trigger a sell-off in risky assets, but a weak report could create the conditions for a bullish breakout for the SPX

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The S&P 500 rose on Tuesday, but gains were modest amid cautious sentiment ahead of a major market event on Wednesday: the release of US CPI data. In this context, the stock index rose 0.40% to 4427 in late afternoon trading, with the telecommunications services and materials sectors advancing on Wall Street.

Focusing on the inflation report, the core CPI is expected to have risen 0.3% m/m in June, bringing the annualized rate to 3.1% from 4.0% previously, a welcome directional improvement for the US central bank. The core gauge is also expected to have risen 0.3% m/m, but the 12-month reading is expected to remain flat, cooling only to 5.0% from 5.3% in the prior period.

Incoming economic data for the United States

source: DailyFX Economic Calendar

Traders should remain focused on the economic calendar, as incoming data can help guide the Fed’s next steps regarding the normalization cycle. However, a head-to-head or lower-than-expected CPI survey may not be enough to crush bets on another quarter-point increase this month, but it may help dampen expectations of further tightening after July. This could be positive for the S&P 500 and risk assets in general.

Conversely, if inflation numbers surprise the upside, particularly the core index, the Fed’s higher inflation expectations could turn in a more hawkish direction, prompting traders to hike the rate by another 25 basis points for 2023 in addition to the price that was previously reported. It’s already deducted from the Federal Open Market Committee (FOMC) for this month. interview. This scenario could be detrimental to stocks due to its primary implications for the economy: a more hostile environment for corporate earnings and a higher probability of a hard landing.

Technical analysis of the S&P 500 index

The S&P 500 has been making a bearish double top pattern since early June, but the technical formation is losing reliability and could become invalid if prices rise further and challenge their recent peak in the coming days. In this scenario, the index might struggle to clear the resistance at 4,500, but upon breakout, it could gain momentum to take off and head towards 4,585.

On the flip side, if the S&P 500 changes gears and starts bouncing lower, initial support appears at 4,370. Clearing this floor would confirm the double top, creating the right conditions for a potential pullback towards 4300, followed by 4245.

S&P 500 technical chart

S&P 500 futures chart created with TradingView