S&P 500: Final Stages, Week Starting June tenth (Technical Analysis) (SP500)

The S&P 500 (SPY) has made some erratic moves in recent weeks but the higher timeframes have provided a consistent bullish bias and kept us on the right side of the recent rally. Last week’s article concluded, “a new high above 5341 remains probable and 5400-412 is the likely target.” Friday’s move reached 5375, which is getting close…but close to what?

This week’s article details what to look for if and when the target area is reached, and what will change the bullish bias. Various techniques will be applied to multiple timeframes in a top-down process which also considers the major market drivers. The aim is to provide an actionable guide with directional bias, important levels, and expectations for future price action.

S&P 500 Monthly

As pointed out last week, the positive May bar gave “the first part of June a bullish bias.” This has already played out and we now need to think about how the June bar can either stay bullish or show signs of weakness. At this early stage in the month, the May close of 5277 is relevant – June is bullish while above, neutral/bearish below. As the month progresses, additional levels and considerations could be important, but there is no point covering every permeation with three weeks left in the month.

The S&P500 is in blue sky again, with measured moves and Fibonacci extensions a guide for targets. The next of these is at 5421.

May’s high of 5341 is noteworthy but is too close to the current action and will be more important should the S&P500 distance itself from this level and then return to it. May’s close of 5277 is a bull/bear line, while April’s low of 4953 is minor support.

June is bar 7 (of a possible 9) in an upside Demark exhaustion count. These counts can have an effect from bar 8 onwards so a possible reaction is getting closer.

S&P 500 Weekly

A higher low, higher high and all-time high close negated any bearish tones to the previous bar. Now that the March high of 5265 has been tested several times from above, it should now act as a floor for continuation higher.

As always, we should ask ourselves where the bias changes. A close below 5265 at this stage would be a clear red flag.

This week’s high of 5375 is minor resistance. The weekly channel high is too distant to be relevant.

5191 is minor support. The 20-week MA is a key level and will be around 5165 next week.

Next week will be bar 6 (of 9) of an upside Demark exhaustion count. As noted earlier, these counts can have an effect from bar 8 onwards so a possible reaction is getting closer.

S&P 500 Daily

On the face of it, the action was textbook bullish this week with a test lower on Monday putting in the low of the week and new all-time highs Wednesday onwards. Wednesday’s session triggered an intraday inverse head and shoulders pattern which has a target of 5400.

Friday’s fade from 5375 is a minor dent to the bullish story, but one erratic session isn’t significant on its own. Friday’s low of 5331 and the pre-market low of 5319 are important for short-term direction. A break of this area would target 5265-81. A hold targets 5400-412.

Friday’s 5375 high is the only resistance.

5319-31 is near-term support. The 20dma will be at 5298 on Monday and rising around 7 points a day. 5291-97 is potential support, but the weekly level just below at 5265 is more important.

An upside Demark exhaustion signal will be on bar 5 (of 9) on Monday, which means it could have an effect from Thursday onwards.

Drivers/Events

More soft data drove the action in the first part of the week, with ISM Manufacturing PMI in contraction at 48.7 and JOLTS Job Openings missing expectations of 8.37M with a reading of 8.06M. Yields and the US dollar fell, while stocks rose. Friday’s strong Jobs Report was expected to show more cooling, but a surprising strong release reversed the moves. Yields and the dollar reversed higher, while stocks, on the other hand, were all over the place.

The erratic moves in stocks stem from the mixed drivers. Do they want weak data / more easing or strong data / less easing? I think they can rally under both scenarios, but both also contain possible negatives so markets are undecided on how to react. Furthermore, the data can shift the situation from one to the other in the space of a day like it did on Friday.

Next week’s main events are on Wednesday with the release of CPI and the June FOMC meeting. CPI should be straightforward enough for stocks – the lower the better. The Fed, meanwhile, likely keep options open.

PPI and Unemployment Claims are released on Thursday, with UoM Consumer Sentiment due out on Friday.

Probable Moves Next Week(s)

The bigger picture view has worked well and continues to point higher. The bias will only change should there be a weekly close below 5265.

Short-term, Friday’s turbulent session makes the direction early in the week unclear. A drop through Friday’s lows could target 5265-81 but this should set the low of the week and create a buying opportunity for further highs.

If and when the 5400-412 target is reached, it will be time to re-assess. The rally from the April low is showing momentum divergence and poor breadth so there are reasonable odds a reversal unfolds in the 5400 area, especially when exhaustion signals mature in the coming weeks. The aim will be to recognize whether any reaction from this area is just another small dip in an ongoing trend (a buying opportunity), or if a much larger decline will unfold. At the moment, the latter will only be confirmed by a move below 5265, but obviously it is not ideal to wait for a 150 point decline before taking action. Thankfully, there should be a chance to move inflection levels higher in the coming weeks as new patterns take shape.