U.S. equity indices have been setting one record high after another these days! But is it time for a major pullback on the S&P 500 soon? Check out these inflection points I’m watching on the 4-hour time frame:
S&P 500 Index (SP500): 4-hour
It looks like the Fed’s easing efforts and aggressive stimulus measures from China are breathing life back into the U.S. stock markets lately!
The S&P 500 index has surged to fresh record highs this week while FOMC officials continue to express support for further reductions in borrowing costs. After all, the possibility of even lower interest rates down the line could bring more upside for business and consumer activity.
Can this equity index sustain its rally past this near-term ceiling during the release of the U.S. core PCE price index, though? Remember that directional biases and volatility conditions in market price are typically driven by fundamentals. Suppose you haven’t yet done your homework on the U.S. stock market and overall risk sentiment, then it’s time to check out the economic calendar and stay updated on daily fundamental news!
The S&P 500 has formed higher lows and slightly higher highs, creating a rising wedge pattern that’s been holding since August. The index is now hovering at the wedge resistance, still deciding whether to make a bounce or a break.
The 100 SMA is above the 200 SMA, suggesting that the path of least resistance is to the upside, possibly taking the index higher by the same height as the chart formation. If the wedge top holds as a ceiling, on the other hand, the S&P 500 could pull back to nearby support areas marked by the Fib retracement tool.
In particular, the 38.2% level lines up with S1 ($5,629.22) and a former short-term resistance zone while the 50% Fib is close to the $5,600 major psychological support and 200 SMA dynamic inflection point. The 61.8% Fib coincides with S2 ($5,554.68) and the bottom of the wedge.
Final Thoughts
The S&P 500’s recent surge to record highs reflects optimism driven by the Federal Reserve’s easing measures and China’s aggressive stimulus efforts. However, the formation of a rising wedge pattern on the 4-hour chart suggests the potential for a pullback if the index fails to break through its current resistance. While the 100 SMA above the 200 SMA indicates bullish momentum, the S&P 500 is at a critical juncture.
A failure to sustain the rally could see the index retrace to key support levels, particularly around the 38.2% to 61.8% Fibonacci retracement zones. Investors should closely monitor upcoming economic data, such as the U.S. core PCE price index, as fundamentals could drive the next significant move in the market.
Article Source: Babypips
