S&P 500 forecast: US stocks set to extend rally for sixth day

It has been another day of solid gains for the US markets, with the benchmark US indices holding onto gains of around 1.0 to 2.7 percent at the time of writing. Nikkei futures have surged further to 3.5%, tracking the USD/JPY higher in what has been a full-on risk-on day in the markets. It looks like the markets will end the week on a strong positive not, heading into the last day of the week. The technical S&P 500 forecast also looks quite bullish after the impressive recovery. This is causing the bears who until a couple of days ago must have felt they still had some control over price action, to lose their grip on the markets almost completely.

Why are markets up?

US index futures were already higher, but then rallied further, as news of a stronger-than-expected retail sales print (+1.0% m/m) was cheered by investors, who had been a little hesitate to buy equities earlier amid concerns over an economic slowdown following the release of weaker Chinese data overnight. At the time of writing, the S&P 500 was testing its session highs, looking to extend its winning run to a sixth day, assuming we won’t see a late-day sell-off. The strong gains since Tuesday have been fuelled by a combination of weaker inflation data, which further cemented expectations that the Federal Reserve would start a rate cutting cycle in September, and not-so-weak data ranging from retail sales to ISM services PMI and jobless claims, all helping to reduce concerns over a hard landing. This combination presents a goldilocks scenario for equities.

As the disinflationary process progresses further, investors will be wondering how the economy is going respond to the upcoming rate cuts and whether a hard landing could be avoided, which is still a risk judging by consistent weakness in industrial data. Recent macro pointers suggest the global economy is weakening, which should, in theory, be negative for company profits. But on the back of today’s mostly positive US data, some of those concerns have been scaled back. The recent impressive recovery in the last week and a half means equity market bears must await a fresh sell bearish before potentially entertaining the idea of shorting the markets. The bulls will be happy to continue buying short-term dips unless key support levels start to break down again. So far, we haven’t seen any evidence of that.

S&P 500 forecast: technical analysis and trade ideas

While the S&P chart is looking a little overstretched and overbought on the short-term time frames, that’s not to say a new sell-off will necessarily be on the cards. The impressive recovery means a close around current levels or higher would re-establish the trend line that broke down a couple of weeks ago amid the unwinding of carry trades.

Source: TradingView.com

Around current levels, some side-ways chop, and churn would not be the worst outcome here for the bulls as that will allow overbought conditions to be worked off through time. The fact that the S&P 500 has reclaimed the broken shaded blue area around 5440 to 5463 is going to keep the bulls happy for now. For as long as we don’t go back below this area, any short-term dips could present favourable trading opportunities for the bulls.

In terms of potential resistance levels to watch, well we are now approaching a key hurdle starting at around 5523 to 5565. This area was formerly support and kind of represents the last line of defence for the bears. The bears will clearly want to see some bearish price action here, else a break above it could send a strong bull signal that could potentially see the index head towards a new record high.

So, the technical S&P 500 forecast looks quite bullish as things stand, if only a little bit overbought.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.