S&P 500 Rally Faces Key Economic Data Amid Signals of Potential Pullback

Andreas Thalassinos
Andreas Thalassinos

24.10.2024

This week brings several high-impact economic events, with Flash PMI reports from Europe, the UK, and the US, alongside Canada's retail sales data.  These reports come as the S&P 500 continues its upward momentum, recently reaching a new all-time high.  The rally has been supported by the Federal Reserve's rate cuts and a favorable technical setup, though some indicators signal the possibility of a short-term retracement.  As global economic conditions evolve, traders will keep a close eye on these data releases and their potential market impact.

Overview

This week brings several high-impact economic events, with Flash PMI reports from Europe, the UK, and the US, alongside Canada's retail sales data. These reports come as the S&P 500 continues its upward momentum, recently reaching a new all-time high. The rally has been supported by the Federal Reserve's rate cuts and a favorable technical setup, though some indicators signal the possibility of a short-term retracement.  As global economic conditions evolve, traders will keep a close eye on these data releases and their potential market impact.

Key Economic Events

Thursday 11:00 am (GMT+3) - Europe: Flash Manufacturing PMI (EUR)

Thursday 11:00 am (GMT+3) - Europe: Flash Services PMI (EUR)

Thursday 11:30 am (GMT+3) - UK: Flash Manufacturing PMI (GBP)

Thursday 11:30 am (GMT+3) - UK: Flash Services PMI (GBP)

Thursday 16:45 (GMT+3) - USA: Flash Manufacturing PMI (USD)

Thursday 16:45 (GMT+3) - USA: Flash Services PMI (USD)

Friday 15:30 (GMT+3) - Canada: Retail Sales m/m (CAD)

Technical Analysis

After a significant correction in July-August, the S&P 500 rebounded, setting a new all-time high of 5889.63 last week. Several key factors fueled this rally, most notably the Federal Reserve's rate cuts, which helped ease market concerns and restored investor confidence. From a technical standpoint, the rally was ignited by a failure swing reversal pattern, where the swing low of 5385.10 held above the previous trough, followed by a breakout above the 5656.00 peak, clearing the path for further gains.

Additionally, prices are trading above the 50-period Exponential Moving Average (EMA), reflecting sustained upward momentum.  Both the Momentum oscillator, which is above 100 and the Relative Strength Index (RSI), holding above 50, suggest continued buying pressure in the near term. However, closer inspection reveals a negative divergence between the price and the Momentum oscillator, signaling the potential for a short-term retracement.

Potential Upside Targets  

Should the bulls maintain market control, traders may direct their attention toward the four potential resistance levels below:

5889.63: The initial resistance is 5889.63, which aligns with the daily high reached on October 17.

5981.84: The second price target is identified at 5981.84, corresponding to the weekly resistance, R3, calculated using the standard Pivot Points methodology.

6094.32: The third target is established at 6094.32, aligning with the 261.8% Fibonacci Extension drawn from the swing high of 5889.63 down to the swing low of 5768.08.

6282.97: An additional price target is estimated at 6282.97, corresponding to the 423.6% Fibonacci Extension drawn from the swing high of 5889.63 down to the swing low of 5768.08.

Potential Downside Targets  

Should the sellers take market control, traders may consider the four potential support levels listed below:

5768.08: The first level of support is identified at 5768.08, representing the swing low formed on October 23.

5656.00: The second support level is 5656.00, reflecting the daily high marked on September 2.

5544.40: The third support level is identified at 5544.40, representing the support area from August 28.

5385.10: An additional downward target is observed at 5385.10, corresponding to the daily low formed on September 6.

Fundamentals

According to Citigroup strategists, exposure to the S&P 500 has reached levels reminiscent of mid-2023, when a 10% drop followed similar positioning. Long positions on futures tied to the index are now "particularly extended," raising potential drawdown risks, though strategists are not recommending immediate action. The S&P 500 experienced a 10% decline from August to October last year amid concerns about prolonged high interest rates. However, investors are more optimistic this time, as the Federal Reserve has begun cutting rates while economic growth remains stable. Citi notes that current profitable positions are less stretched compared to 2023, suggesting less risk of major pullbacks.

Conclusion

As the S&P 500 reaches new highs, the combination of favorable technical setups and the Federal Reserve's rate cuts continues to support upward momentum. However, caution remains due to signs of potential retracement, highlighted by technical divergences and extended market positioning. This week's key economic events, including Flash PMI data and Canada's retail sales report, could provide further direction for traders. With global economic conditions evolving, market participants should stay alert to shifts in sentiment that could influence both upside and downside price movements.

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Andreas Thalassinos
Andreas Thalassinos

Andreas Thalassinos is a recognized authority in the financial markets and world renowned for his expertise in algorithmic trading. He is a Certified Technical Analyst and highly respected lecturer in the education of traders, investors, and financial markets professionals. Thalassinos has played a key role in the development of education within the industry, training tens of thousands of traders of all skill levels. Traders value his seminars and workshops for the rich content, his passionate, charismatic, and lively presentations.