FUNDAMENTAL
OVERVIEW
The S&P 500 managed
to rally into a new record high yesterday despite strong tensions under the
hood. There’s been a significant divergence in market breadth, but the more
important one is with US credit spreads which have been widening considerably.
Credit spreads are a
useful indicator of financial conditions and risk appetite. When growth
expectations improve, credit spreads tighten and the risk sentiment turns
positive. On the other hand, when growth expectations deteriorate, credit
spreads widen and the risk sentiment turns negative.
Credit spreads generally lead the stock market, so the
recent rally might not have been a healthy one, and the risk of a quick
unwinding remains high.
The US and Iran continue to be at a stalemate and
supply disruption risks continue to outweigh the improvement in physical
exports. Iran has also vowed to soon block the “illegal” routes in the Strait
of Hormuz, which could send oil prices higher.
Looking ahead, given this week’s light calendar,
US-Iran developments will remain in focus. Next week, we will also get the US
CPI report which could trigger a hawkish repricing and weigh on the market in
case the data comes out hotter than expected.
S&P 500 TECHNICAL ANALYSIS – DAILY TIMEFRAME
On
the daily chart, we can see that
the S&P 500(CFD contract) managed to rally into a new record high yesterday
despite the underlying macro and geopolitical headwinds. If we get a correction,
we can expect the buyers to lean on the trendline, with a defined risk below
it, to keep pushing into new highs. The sellers, on the other hand, will look
for a break lower to extend the drop into the 7,500 level next, with the 7,600
level as the first target.
S&P 500
TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On
the 4 hour chart, we have a
support zone around the 7,775 level. The buyers will likely step in around the
support, with a defined risk below it, to position for a rally into new highs.
The sellers, on the other hand, will look for a break lower to extend the drop
into the major trendline next.
S&P 500 TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we
have a minor downward trendline defining the current pullback. If the price
bounces on the support and pulls back into the trendline, we can expect the
sellers to lean on it, with a defined risk above it, to keep pushing into new
lows. The buyers, on the other hand, will look for a break higher to increase
the bullish bets into new record highs. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Todaywe
have the FOMC meeting minutes. Tomorrow, we get the latest US Jobless Claims
figures. On Friday, we conclude the week with the University of Michigan
Consumer Sentiment survey.
This article was written by Giuseppe Dellamotta at investinglive.com.