S&P 500 - As clear as mud
Many US exchanges are closed in observance of Martin Luther King Day. This means that there’s no trade in individual stocks, although futures markets are open, but closing early. Consequently, we can expect trading volumes to be low and liquidity light which sometimes results in jumpy price moves. We had a mixed close on Friday with the Dow lower thanks to weakness in UnitedHealth. The medical insurance giant reported an upbeat set of fourth quarter results with better-than-expected revenues and earnings per share. But the company also warned of rising costs, and this led to a sell-off, which, with UnitedHealth having the largest weighting in the Dow out of all constituents, affected the index negatively. Both the S&P and NASDAQ ended the day little-changed. But all the major indices made gains last week, led by the tech-heavy NASDAQ 100. Overall, there was a mixed start to the fourth quarter earnings season, but this was overshadowed by inflation data. Thursday saw the CPI come in hotter-than-expected. But this was offset a small drop in Producer Prices on Friday. Following the sharp rally since the end of October, the Dow, S&P 500 and NASDAQ 100 are now consolidating under resistance at 37,800, 4,800 and 17,000 respectively. The key index here is the S&P 500, which, unlike the Dow and NASDAQ, has failed to take out its old record high from January 2022. Could the current consolidation provide a launchpad for a successful assault at 4,800 or will we see more of a protracted pull-back? Perhaps the earnings season will provide the catalyst.
Certainly, the S&P could continue to trade sideways in a narrow range. That could help to ‘reset’ the MACD giving it and the index more room for gains. Alternatively, we could see a bigger pull-back. As we can see from the daily chart above, the S&P is comfortably in the upper section of the trend channel, so has plenty of room for a correction to the downside while remaining in an uptrend. Finally, having dealt with the possibility that the S&P goes sideways or downwards in the near-term, it could also decide to go straight up to new highs. Anything is possible at the moment, and it’s very difficult to handicap any one of these paths and assign odds to it. Consequently, if you don’t have a position, it would be sensible to sit this out and hope for some future clarity.
Certainly, the S&P could continue to trade sideways in a narrow range. That could help to ‘reset’ the MACD giving it and the index more room for gains. Alternatively, we could see a bigger pull-back. As we can see from the daily chart above, the S&P is comfortably in the upper section of the trend channel, so has plenty of room for a correction to the downside while remaining in an uptrend. Finally, having dealt with the possibility that the S&P goes sideways or downwards in the near-term, it could also decide to go straight up to new highs. Anything is possible at the moment, and it’s very difficult to handicap any one of these paths and assign odds to it. Consequently, if you don’t have a position, it would be sensible to sit this out and hope for some future clarity.
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