- S&P 500 struggles below 7,000 as momentum fades near resistance.
- Strong jobs data delays rate cut hopes, keeping equities choppy.
- The key support zone near 6,900 is critical to prevent a deeper pullback.
US index futures were modestly higher, with Europe trading mixed following a weak handover from Asia overnight. There’s not much in the way of important data except , before the focus turns to inflation data on Friday and retail earnings next week.
Markets have been quite choppy in the US lately. It was again a similar affair yesterday with stocks initially rallying on the back of the strong jobs report, before easing lower as traders took quick profit on the view that the data would mean delayed from the Fed.
Then, dip buyers stepped late in the day to lift indices off their lows, although this wasn’t enough to lift the above the 7,000 level. This has proven a tough nut to crack, with the index unable to climb convincingly above it since testing it for the first time in early January. Will it finally break this handle soon, or do we first see a correction of some sort?
Stocks Remain on Front Foot but Lacking Momentum
It was a so-called goldilocks scenario for stocks with the suggesting the labour market is holding up better than expected, which is a good sign for the economy – if one truly believes the data was genuine (as they always get revised later). While improvement in the labour market is always a good sign, it does, though, mean less chance for a sooner-than-expected Fed rate cut this year. But the Fed looks at the trend of the data rather than individual reports.
More evidence of a turnaround in the jobs market is needed to convince the Fed doves. The focus now turns to Friday’s inflation report for clues on future policy moves. Softer data will revive expectations for an earlier cut and potentially support the stock market. Otherwise, things could become a bit wilder.
S&P 500 Technical Analysis
The S&P 500 futures have been consolidating below the 7000 key resistance and psychologically important level for a number of days now. The underlying trend is clearly bullish, with the index holding above the 200-day moving average, making higher highs and higher lows, and so on.
However, the loss of bullish momentum is the key concern here, because we saw a big rally last Friday, which created a powerful engulfing candle on the daily timeframe. What we should have seen after that candle was formed was some further upside follow-through. While the index has shown some upside, it’s not been nearly enough over the last few days to stage a clean breakout above that 7000 level.
We’ve tested this level over the last three days, but it hasn’t been enough to push us through it. So it’s important that the buyers step in and do so soon. Otherwise, there’s a risk that, because of the loss of bullish momentum, traders might be tempted to look for opportunities to short the market, thinking that it may be due for a correction of some sort.
Key Levels to Watch
For me, the important area to watch on the downside is between 6900 and 6935. This area marks short-term support, where the index has held in the last few days. In the event of a break below this area, we could see the index head back down to the next support zone between 6771 and 6815.
Below that, things start to get more bearish in the short term. If that area doesn’t hold, we could initially be heading back toward Friday’s low of 6751, followed potentially by 6525, which was a level tested back in November. Interestingly, this is also where the 200-day moving average is converging, making it a very important area of potential support if the market does get there.
But for the time being, let’s not get too bearish, because the trend is still clearly bullish. This could simply be a period of consolidation before we see further upside.
A clean break above the 7000 level, ideally on a daily closing basis, could open the door for new record highs above January’s peak of 7043. In that case, you could then plot your Fibonacci levels and look to target the 127.2% and 161.8% extension levels of the most recent corrective move from the January peak to Friday’s low. Those levels come in at 7122 and 7223, respectively.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.
