S&P 500 Technical Analysis: Rally Begins to Shake as Price Re-Approaches ATH

S&P 500 Talking Points:

• The equity rally began to how signs of slowing last week; but bulls haven’t relinquished control yet as support held above a key zone spanning from 5562-5600
• While pricing-in rate cuts has had a bullish effect for stock, actual rate cuts could compel a rally into bonds and that could potentially draw capital away from equities, particularly if the market begins to price-in a more aggressive pace of loosening from the FOMC

Equity Rally Continues

Just a few weeks ago markets were engulfed with worry as recession fears began to take-over. While much of the media seemed to attribute the drawdown in stocks to the unwind of the Yen carry trade, evidence suggests that there was something else going on at the time. And if looking at the rally in Treasuries, it makes sense as to why. With rate cuts getting priced-in more aggressively, a rally developed in Treasuries as traders and fund managers tried to get in-front of what started to feel like inevitable rate cuts from the FOMC. As that rally in Treasuries took place, capital came from a number of other markets, stocks included.

But as U.S. data began to take on a more positive tone, markets took a step back from the ledge and in S&P 500 Futures, that equated to a hammer formation on the weekly chart. Another week of encouraging data printed the week after, with both PPI and CPI coming-in slightly below expectations. It was weak enough to keep the door open for rate cuts but not so weak that markets built in a greater fear of recession.

That led to a 4% move in the E-mini S&P, the largest weekly gain since November of last year. Coming into the past week bulls remained very much in-control, but the began to show signs of stall after price pushed within 1% of the all-time-high.

S&P 500 Futures – Weekly Price Chart

Chart prepared by James Stanley; data derived from Tradingview

ES Daily

From the daily chart we can see that enthusiasm lasting through last week’s open, and running higher on Tuesday. But Wednesday and Thursday both showed struggle from bulls as price was unable to extend a rally beyond 5643.75. On Thursday, bulls did make a stretch but were soundly rebuffed at the 5644 level after which price then printed a bearish engulfing pattern on the daily.

While the Friday bar is green (as of this writing) given the backdrop one would think that bulls would be able to show a more powerful move. Jerome Powell practically proclaimed that rate cuts would be coming at the Fed’s meeting next month yet buyers struggled while setting a lower-high inside of the Thursday swing.

S&P 500 Futures Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

S&P 500 Strategy

The building complication for bulls at this point is proximity to the all-time-high, which can make for unattractive risk-reward ratios on the long side of stocks. This doesn’t make for a direct spell of reversal, but it can open the door for pullbacks and that pullback could possibly turn into something more, depending on how support is treated.

At this stage given the hold of higher-low supports combined with the continued bullish trend, we’d have to assume that buyers remain in-control and for that theme, a hold of support at 5588-5600 remains key. If buyers let that slip, the next major zone of support spans from 5491.50-5500. If that comes into play, bounces can be read for lower-high potential which could further open the door for a broader bearish move.

On the topside theme, resistance at 5664 remains a variable but it’s the zone above that which remains of interest. That’s the 5700 level and can be spanned up to the all-time-high set last month at 5721.25.

S&P 500 Futures – Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

Written by James Stanley, Senior Strategist for Forex

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