S&P 500: Big Hurdles, Week Starting May 13th (Technical Analysis) (SP500)

In last weekend’s article,Ready to squeeze” and concluded that the S&P 500 “has a good chance of rising” (spy).This worked up to a point, but higher movements exceeded my expectations Expectations have increased and it’s starting to look like more than just a short squeeze. Wednesday’s session had a chance to close the gap and form a comeback, but that failed, forcing a continuation and Thursday and Friday being strong for the third week in a row.

The rally currently stands at 5,439 points, just 25 points away from its all-time high. Will this be a big hurdle? In this weekend’s article, we will look at the possible reactions when prices return to previous highs. Different techniques are applied over multiple time frames in a top-down process that also takes into account key market factors. The aim is to provide a practical guide. Directional bias, critical levels and predictions of future price movements.

S&P500 Monthly

Weak highs formed by strong closes in March and Q1 provided a bullish bias. There was always a chance of new highs. It was a question of when. Recent strength suggests this could happen as soon as this month, and the 5256-64 area has already been tested three times, so 5264 shouldn’t be too big of a hurdle.

Even if a rally were to break out, there would be no major obstacles. The Fibonacci extensions at 5300 and 5421 are potential targets.

A reversal could occur if the May bar fails to break above 5264 and returns to the lower half of its range.

The only resistance is the high of 5264.85.

The April low of 4953 is providing minor support. 4853 and 4818 are the major levels below.

In May, the 6th bar (out of 9 bahts) is on an upward trend. Demark consumption number.

S&P 500 Weekly

Deep-rooted doubts about the sustainability of this rebound were dispelled this week. Higher highs, higher lows, and higher closes were all set, with the close comfortably above the big falling bar for the week of April 15th, i.e. 5168. Higher prices are likely to continue next week.

The 5264 high is potential resistance, but we see three weekly highs near that level. This shows that the price was not strongly rejected and is further evidence that the 5264 high is weak.

This week’s rise in the gap has created potential support at 5128-42. The 20-week moving average is the next important level below it.

Demarque’s attrition count, a developing downside, has been discontinued. Next week will be bar 2 (out of 9) of the new up count.

S&P 500 Daily

The rally has jumped over potential resistance with a gap above the 20dma and 50dma, a bit similar to November’s bullish action. As mentioned in the intro, there was room for a reversal in Wednesday’s session. The “bearish abandoned baby” candlestick pattern is one of the most powerful reversal patterns. When this pattern failed, it was a clear indication that the bulls were once again in control.

If Monday’s session gap falls below (and stays below) 5209, another “bearish abandoned baby” pattern could form. If this runs, it should lead to at least 5142-65.

5256-64 is an obvious resistance at the highs.

The first good support is Wednesday’s low at 5165, then weekly support and the 50DMA at 5142.

An upward Danish depletion signal will appear on Monday’s bar 7 (out of 9 bars). As we often see a reaction at bars 8 or 9, we could see a pause on Tuesday/Wednesday and a fall towards support.

driver/event

The weak data continued this week as well. The number of unemployment insurance claims rose by 231,000, the highest level since August last year. This was viewed favorably as reinforcing the Fed’s dovish expectations. Meanwhile, UoM consumer sentiment failure led to a downturn. Are US consumers finally weeded out? Next week’s retail sales data will be interesting.

The main event next week will be Wednesday’s CPI release, with the rate of increase expected to slow to 0.3% from 0.4%. The PPI is scheduled to be released on Tuesday, when Fed Chairman Jerome Powell will also speak.

The current bull market remains driven by the Fed’s staunchly dovish stance and tepid data. There are many signs that the economy is slowing, and inflation should fall again, which is fine as long as the economic downturn is contained. However, caution should be exercised if the market sustains a selloff following weak data. That could indicate that concerns about the economy outweigh the dovish tailwinds. Many people think that any problem can be quickly reversed with a few rate cuts, but that’s not always the case.

Expected developments for next week

There are no bearish signs to report at this time. 5264 is a level that everyone is paying attention to, but it shouldn’t be that big of a hurdle for rallying. There was always a chance of a new high at some point. The break should target 5300 or even 5421.

Of course, the higher route may not be easy, especially with Powell and CPI on Tuesday and Wednesday. A daily fatigue signal will be issued around the same time. Support is at 5165, with 5142 at the important position of this week’s low and the 50DMA. As long as 5142 holds, the bulls have the upper hand.

Looking at the bigger picture, a return to 4818 now seems unlikely. Personally, I won’t make any serious purchases until I get below that level in my long-term account. In the meantime, I need to choose my trades carefully and try to ride this crazy bull market higher.