S&P 500: Trade of the Year. Week starting April 29 (technical analysis) (SP500)

Last weekend’s article was titled “Capitulation” and speculated that the S&P500 (TO SPY) had hit a short-term low at the futures low of 4924. It concluded: “5048-5050 is the initial target, but should ultimately break through 5108.”

This largely played a role while the week’s high stood at 5114. However, this was likely a simple short-term move within a complex correction. Other twists and turns could still occur and the S&P500 should eventually fall below 4,818 to constitute the “trade of the year”.

This weekend’s article will describe this trade in more detail and look at what’s likely to happen next week. Various techniques will be applied across multiple time periods in a top-down process that also takes into account key market drivers. The goal is to provide an actionable guide with directional bias, important levels, and expectations for future price action.

S&P 500 monthly

There are only two sessions left before the April close and it looks like the monthly bar will close in the upper half of the range after making a decent comeback. This will create a neutral bar. The arguments made in previous articles remain valid – the monthly and quarterly charts still have an overall bullish bias to new highs – but with a neutral bar in April, the very next move is unclear.

A slight advantage may be brought by the similarities with the monthly pattern created from June to August last year. The July peak was a weak peak, as was the March peak. Fears of “higher for longer” interest rates and earnings season were the main themes then as they are today. The trend suggests a strong close in April and a return to the downside in May. This is something I will watch on the lower timeframes.

The high of 5264.85 is the only resistance.

The April low at 4953 provides minor support. 4853 and 4818 are major levels below.

April is measure 5 (of 9 possible) in a rising exhaustion count in Denmark.

S&P 500 weekly

An inside bar has formed this week that is neutral/potentially bearish, especially since the previous week closed right at the lows. Overall, the odds favor a continuation of the decline at some point, and the retest of 4818’s breakout is a magnet. That said, this week’s strong close initially suggests more upside potential and the path to the downside won’t be straightforward.

Resistance to 5108 has been tested. 5168 is the next level to note, then the highest of 5264.

The 20-week MA served as support. If this breaks, the 4918-20 area provides minor support, then 4845 and 4818.

The bullish exhaustion signal from Denmark appears to have an effect with a similar delay as the signal from July 23. A new downcount is underway and will be on bar 3 next week.

S&P 500 daily

Thursday’s reversal marked a bullish weekend. Resistance at the 20Dma is clear and marks Friday’s high, but I suspect it can be pushed into early next week. This corrective phase will likely be choppy and may need to eliminate shorts before the next decline. 5168-74 could be reached and this zone marks the gap and high zone before the big drop on April 15th.

Above 5168-74, the gap is filled at 5199, then resistance 5156-64 at the highs.

Immediate support lies at Friday’s low at 5073, then at 4990, followed by the futures low at 4924 confluence with pivots 4918-20. The gap at 4845-53 is actually a monthly gap and is therefore relevant for a rebound, but all roads seem to lead to 4818.

A rising exhaustion signal from Denmark will be on bar 5 (of 9) on Monday and will therefore be active on Thursday and Friday.

Drivers/Events

The Iran/Israel conflict has fortunately calmed down and is no longer making headlines. This allowed markets to focus on data and earnings, which were very mixed. The GDP failure caused a strong downward reaction, as expected, while the PCE price index contributed to Friday’s rally by showing inflation in line with the estimate of 0.3% (markets overlooked the upward revisions for January and February).

The busiest week of the earnings season was generally positive. Decent earnings reactions from Alphabet (GOOG) (GOOGLE), Microsoft (MSFT) and Tesla (TSLA) helped fuel a recovery in the “Mag 7”, although all stocks remain at lower highs. Apple (AAPL) reports next week.

Next week’s data focuses on the labor market. The Employment Cost Index will be released on Tuesday and the bulls want to see it missed or in line. Wednesday will bring the JOLTS job openings and the jobs report will be Friday.

The jobs data didn’t have much effect on Fed policy and Powell only pivoted when inflation forced him to. So strong data should be positive for stocks. On the other hand, weak data could be problematic unless it begins to spark discussions about anticipated reductions. With GDP failing, it might only take 2-3 weak NFPs to dampen the idea of ​​a “higher for longer” interest rate.

The FOMC meeting will take place on Wednesday. Since the Fed changed course very recently, no major changes are likely.

Probable moves next week(s)

A short-term bottom has been reached and the S&P500 is recovering, helped by earnings and relative calm in the Middle East. Similarities to last year’s June-August period and a strong weekly close suggest the bounce may break past resistance at 5108. This is likely targeting 5168-74 where another lower leg should establish.

From a broader perspective, the weak low of 4953 is unlikely to mark the end of the second quarter decline and 4818 should act as a magnet in a complex corrective phase. Trading the swings of this correction will be a challenge, but patience should be rewarded as a drop below 4818 would establish the “trade of the year”. With longer time frames providing a bullish bias, buying near 4,700 should aim for new highs above 5,264 in the fourth quarter.