The S&P 500 confirms the breakout as the de-escalation trend continues

The stock market bottomed a week after the April 2 announcement when President Trump paused the reciprocal tariffs for 90 days on April 9. That week we reached the peak in trade escalation and from that moment onwards, the risk/reward picture favoured the upside for the de-escalation trend.

The negative data continues to be faded because it’s old news and the market is looking forward to positive resolutions and eventually higher economic activity as the trade uncertainty wanes. This trend is likely to remain intact until we get the details of the first trade deal. If the average tariff rate is 10% or lower, we should see the market continuing higher and eventually make new all-time highs.

Conversely, a rate above 10% would likely be a disappointment and the market could go back pricing in slower growth with the stock market selling off again.

On the daily chart, we can see that the S&P 500 broke above the key resistance level and the major trendline. We got a retest of the broken resistance yesterday when the US GDP triggered some short-term weakness, but eventually we got back to the highs and even made new ones. The next target is the swing level around 5,800 price region.

On the 1 hour chart, we can see the short-term selloff triggered by the US GDP that eventually bottomed around the key 5,480 level where the dip buyers piled in and got some support from good US Core PCE data. Later in the day, we also got the news that the US reached to China for tariff talks which supported further upside. And everything culminated with strong tech earnings.

We now have the 5,596 level as the closest support where the buyers could step in with a defined risk below the level to position for further upside. In case of a break though, the sellers will likely push the price all the way back to the 5,520 level where we will find a minor upward trendline. That will be the next support for the dip-buyers.

This article was written by Giuseppe Dellamotta at www.forexlive.com.