Market Insights 8/15
Published 08/15/2024, 08:30 AM
US index futures are advancing as the S&P 500 is set to commence the trading session on a positive note. Despite the index’s recent rally pushing into overbought territory, attention is focused on key support levels and resistance points. A breakthrough above the 5,500 resistance level could signal a continuation of the uptrend.
Ahead of the market open, US index futures are rising, driven by stronger-than-expected July retail sales, which suggest robust consumer spending. This comes as the Federal Reserve prepares for its upcoming meeting next month. Additionally, a decrease in new unemployment claims last week points to a gradual softening of the labor market.
This positive momentum follows the S&P 500’s fifth consecutive gain on Wednesday, with a modest increase following a strong performance on Tuesday. Investors have reacted favorably to softer inflation data, which has bolstered expectations for a potential rate cut by the Fed in September.
Despite encouraging disinflation trends, concerns remain regarding the economy’s response to anticipated rate cuts and the potential for a hard landing. Current macroeconomic indicators suggest a weakening global economy, which could potentially impact corporate profits.
In light of the market’s impressive recovery over the past week and a half, bearish traders may need to await a clear sell signal before initiating short positions. Conversely, bullish investors are likely to buy on short-term dips, provided key support levels hold, some of which will be discussed in this analysis.
Balancing Optimism on Rate Cuts with Growth Concerns
Following the release of July’s US consumer inflation data, major equity indices on Wall Street experienced gains, although small-cap stocks lagged. The absence of a more significant rally can be attributed to investors’ prior positioning in anticipation of weaker inflation, influenced by the previous day’s softer producer price data.
Although the Consumer Price Index (CPI) aligned with analysts’ expectations, it was not sufficiently weak to prevent some profit-taking on short dollar trades, moderating risk appetite in equities. Nonetheless, the disinflation trend continues, with CPI inflation falling below 3.0% for the first time since March 2021. This weaker inflation data could potentially facilitate the first rate cut since 2020. The key question remains whether the Federal Reserve will opt for a 25 or 50 basis point cut in September and the subsequent pace of adjustments.
S&P 500 Technical Analysis and Trading Insights
Following a five-day rally, the S&P 500 futures chart appears somewhat overstretched and overbought on short-term time frames. However, this does not necessarily signal an imminent sell-off. A period of consolidation could allow the market to adjust and alleviate these overbought conditions. The recent recovery of the shaded blue zone between 5333 and 5396 is a positive indicator for bullish investors. As long as this zone remains intact, short-term dips could present viable buying opportunities.
Resistance levels to monitor are now approaching the 5500 to 5542 range. This area, previously a support zone, now represents the underside of a broken trend line established since October 2023. Bearish traders will be vigilant for any signs of weakness at this level. Conversely, a decisive break above this resistance could signal a strong bullish trend, potentially driving the index toward new record highs.
Our AI model, which tracks smart money movements, has indicated an anticipated upward movement of over 3% in the coming days. The inflows of capital are evident.