S&P 500: Reserved, Week of June 3 (Technical Analysis) (SP500)

This week’s action was a challenge to navigate and understand. The S&P 500 (SPY) opened the week higher, then steadily fell through support levels. With less than half an hour remaining until the monthly close, Friday’s session was trading at 5228 It is within the March/April range and forming bearish patterns on the weekly and daily charts. Similarities with the July 23 summit (As highlighted last week) It was convincing. Then, suddenly, a 50-point rally turned everything upside down.

It’s not as if the erratic movements were unexpected. I warned a couple of weeks ago that a simple bullish decline to 5264 followed by new highs could be “too easy.” When many have the same view, the market tends to do something different, at least in the short term. We can try to prepare for alternative scenarios – A A more circuitous route – but I’m pretty sure most of them failed to anticipate the path that was revealed in the end. Friday’s action was so strong that it finally looked like the bears were going to win.

However, we don’t always need to anticipate every wild swing, and the bigger picture can help keep us on the right side and avoid detours. “Overall, bullish signals remain intact and a strong close for May is likely,” last week’s article concluded. Ignore the hype, this happened. Higher time frames are more reliable which is why I use a top-down method to analyze the technical aspects.

This week’s article will look at what Friday’s recovery means for the trend and for the week ahead. Different techniques will be applied to multiple time frames in a top-down process that also takes into account key market drivers. The goal is to provide actionable evidence with directional bias, important levels, and forecasts for future price movement.

Standard & Poor’s 500 monthly

May’s close of 5277 was higher than the March high of 5264 and May can now be classified as a bullish month. This gives the first part of June an upward bias. The price is likely to reach all-time highs above 5341.

The May high at 5341 represents clear resistance. Moreover, measured moves and Fibonacci extensions will serve as a guide to goals. Next is at 5421.

The April low of 4953 is considered a minor support. 4853 and 4818 are key levels below.

June is bar 7 (of a possible 9) in the bearish count of the bullish demark. These numbers can have an impact from bar 8 onwards, so a possible reaction is approaching.

Standard & Poor’s 500 Weekly

After last week’s ‘Doji’, a bearish close below 5257 would have formed a strong reversal pattern, and this was all set up before ‘Save’ on Friday’s close. It begs the question of how much we can read into some moves – can a full week’s down move be negated by a 30 minute move? It depends. That’s why I tend to look across multiple time frames and multiple bars to come to conclusions. Single bar patterns can be unreliable.

Even with the late rally, a lower high, lower low and lower close were achieved this week. Next week will be important in invalidating the potential bearish pattern with opposite characteristics or confirming it if it is repeated.

This week’s high of 5316 is considered minor resistance, with the high of 5341 just above it. The weekly channel is at 5450 which is too far away to be relevant.

This week’s low of 5192 is considered minor support, as is the gap between 5128-42. The 20-week moving average is more important because it represents the April low, but it is sitting at the 5130 level further away.

Next week will be column 5 (of 9) of DeMark’s bearish count.

Standard & Poor’s 500 daily

This week’s decline fell through the 5257-64 support level at the March high, through the channel and through the 20dma. The 50dma at 5181 would have been the next logical point to test, so a reversal at 5191 was difficult to expect. 5191 was the 38% Fib retracement level of the recent rise, and the PPI rises to the lows on May 14, but close to the average The 50DMA was another difficult aspect of this week’s movement.

Last week’s article pointed out similarities between the current movement and the July 23 summit, with both periods forming an “overwhelming” strip of Thursday’s summit.

The similarities persisted until Friday’s reversal and recovery led to significant divergence. Here is an update –

I predicted last week that the corrective aspect of the current decline “suggests there will be a different (bullish) outcome.” This worked, but again, I didn’t expect the decision to play out quite as well as it did. It now appears that the patterns will continue to diverge.

Friday’s high peaked at 5280, near potential resistance at the 5282 gap. Filling the gap at 5306 and the weekly high at 5316 is the next resistance.

Friday’s low at 5191 and the 50DMA below is first support. 5123-5127 is the next level below, then 5000-5011.

A bearish exhaustion signal from Denmark will be on column 7 (of 9) on Monday, but the Wednesday session will need to close below 5235 to complete.

Drivers/events

Weak Treasury auctions and strong consumer confidence data caused yields to rise early in the week which reversed sharply on Friday after the PCE index came in at 0.2% versus 0.3% expected. I actually think the moves in yields/bonds have been cleaner and more logical than the moves in stocks. The 10-year interest rate will likely fall to around 4.2% in the coming weeks, which will act as a tailwind for the S&P 500.

Next week’s data is centered around the labor market, with JOLTS data scheduled for Tuesday and the Non-Farm Payrolls (NFP) report scheduled for Friday. Given the bullish reaction to the weak data in the latest jobs report, bulls will want to see more evidence of a slowdown.

Outside the US, the European Central Bank is scheduled to cut interest rates next Thursday, and the Bank of Canada is also likely to cut rates on Wednesday. These moves are almost entirely priced in, but the market reaction could still be interesting and set a precedent when the Fed eventually cuts.

Potential moves for the coming week(s).

Bigger picture, ignoring the hype, the scene remains much the same as in previous weeks. A new rise above 5341 remains possible, and the likely target is 5400-412.

Obviously, predicting the exact path higher is difficult. Some aspects seem more obvious than others. Friday’s close at session highs suggests there should be further upside in the short term. Any decline from the resistance level of 5280-82 on Monday/Tuesday is likely to hold between 5257-64 and then recover to reach 5306-16, the highest level recorded last week.

Beyond that, the issue is how the S&P 500 handles the all-time high at 5,341. If the move there is too direct, it is unlikely to have the energy needed to make a clean breakout. In this case, an imaginary breakout to 5350-60 may lead to another sharp reversal below 5300 again. On the other hand, if there is a good consolidation or decline below 5341, a breakout to new highs could be more sustainable.