S&P 500 Weekly Technical Review

Last week, we suggested that the index was looking more likely to dip down towards the 5,000 area than to push up to fresh all-time highs, so the minor weakness in recent days has come as no major surprise.

We highlighted a couple of weeks ago how major near term trends had already been breached, both in price and RSI. In these environments it does not take much selling to move markets lower.

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First, we had the US CPI numbers coming in slightly hotter than expected, curtailing hopes of Fed rate cuts in the next few months. Then, in recent days, we have had the Iranian attacks on Israel and then overnight Israel’s response.

This nervousness has allowed the VIX to tick up above 20 in recent hours, highlighting how the markets remain nervous on how this geopolitical situation could yet spill over into a more serious global situation.

So, in this environment, it has been relatively easy for the index to slip down towards 5,000. Quite frankly it has done rather well to have only slipped this far. So this does suggest that there still remains significant underlying buying momentum, to have been able to keep this selling spell relatively muted. The RSI is already close to oversold levels, which is quite unusual in such a powerful bullish trend. So, barring any further escalation of hostilities, we do see buyers tempted back into the markets in the coming days.

The 4,800 area remains a natural support area if a bout of nervousness does emerge ahead, however due to the relatively robust performance of the index so far to the negative geopolitical news and CPI we do see buyers returning next week, and this could quickly escalate into FOMO and cause quite rapid gains in a number of names that have been sold into in recent days, and this could lift the market back towards the 5,200 area. Moves down and under 4,800 would be needed to turn more negative on the outlook.

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