S&P 500 Technical Analysis – The risk of a reversal is high

first half of the week was highlighted by big misses in the US economic data
like Job Openings, Consumer Confidence and ADP. These
might be the first signs that a recession is indeed on the horizon as the
labour market is starting to show weakness. In fact, the market is no longer
seeing the Fed hiking interest rates as the September and November
probabilities dropped further and the rate cut expectations were brought
forward. Nonetheless, despite the worrying data, the S&P 500 rallied
strongly as if nothing bad happened at all. There could be different reasons
that range from a relief rally due to dovish expectations and lower yields or
the market interpreting the softer labour market readings as good news for
inflation going forward. Until we see more data, the technicals will help in
managing the risk and in identifying the most probable market directions.

S&P 500 Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the S&P 500
bounced near the key support at 4324
and extended the rally above the red 21 moving average and the
resistance at 4494. This is a very strong move which was not supported by the
fundamentals, so something else must be brewing. In any case, this breakout is
a bullish signal, and we might see more higher highs going forward unless the
price falls back below the 4494 resistance turned support leaving
behind a fakeout.

S&P 500 Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that after the
breakout, the bullish momentum waned and the price seems to be struggling
around the 61.8% Fibonacci retracement level.
This might be a signal that a pullback is due, and the most probable support is
of course the 4494 area.

S&P 500 Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that we
have a divergence with
the MACD right
at the 61.8% Fibonacci retracement level. This is generally a sign of weakening
momentum often followed by pullbacks or reversals. In this case, we should see
the price pulling back into the upward trendline where
we have the confluence of the
support and the 38.2% Fibonacci retracement level. This is where the buyers are
likely to pile in with a defined risk below the trendline and target the 4634
high. The sellers, on the other hand, will want to see the price breaking lower
to confirm a reversal and position for new lower lows.

Upcoming Events

This week is all about the US labour market data and the
recent releases haven’t been encouraging on a forward-looking basis. Today, the
main event will be the US Jobless Claims report accompanied by the US PCE data.
Tomorrow, we conclude the week with the US NFP and ISM Manufacturing PMI
reports. It’s hard to see the S&P 500 climbing even if the data misses as
the signals for a recession are accumulating, but the stock market always finds
ways to surprise even in the face of economic problems.

See also the video below

This article was written by FL Contributors at www.forexlive.com. Source