- The S&P 500 set a new record on Thursday.
- US CPI data was not enough to stop the running of the bulls.
- Slow and steady as technical data and fundamentals remain favorable.
US stocks all performed well on Thursday, as the US CPI was high but not too high to cause the sells the bears were hoping for. Inflation has been peaking for several years, but this has now been well signaled and accepted by market participants. Even the Fed has come to admit that it might have inflation problems in the future, but it remains committed to an ultra-accommodative monetary policy. With such a safety net, stocks have nothing to do but keep rising. They duly did so on Thursday, with the S&P 500 hitting a new record.
Technical analysis of the S&P 500 (SPY ES SPX)
Traders use one of the following two means to trade the S&P Broad Index, the S&P 500 Futures, the E-mini being the most popular, or the SPY Exchange Traded Fund. The two follow almost identically. Using the real index removes the possibility of using volume indicators, which can be powerful technical analysis tools. Using the futures chart, 4050 remains the double bottom of May 12-19, which started the rally. The volume was low at this level, which led to the rejection of prices and the rise. This 4050 area also corresponds to strong trendline support in place from the October 30th low of last year. The movement is slow and smooth as evidenced by the divergence from the OnBalance Volume (OBV) indicator. This is a market spread momentum indicator that essentially plots the volume of positive days versus the volume of negative days. A divergence can signal a reversal, so it should be watched. The extent of the simple market is positive, the number of stocks increasing – stocks falling. Other momentum indicators remain neutral, the Relative Strength Index (RSI) and the Commodity Channel Index (CCI).
The 4180 was an important level for S&P 500 futures, as shown by the volume profile bar to the right of the chart, as well as the relative balance between bulls and bears in this bar (red and green). Once there, the index must have increased. This will serve as a solid support area on any retracement. A break below 4050 should see movement through some areas of the light volume profile up to the 3920 checkpoint since September, i.e. the loudest and highest volume, area of just value
Sentiment and momentum always favor the rise. The Fed’s balance sheet has been well correlated with equities mainly since 2008 and the start of an ultra-accommodative monetary policy. A new record was set again in the most recent data and the S&P took the lead and hit new records on Thursday.