SPX500 continues primary uptrend, but is overbought

Weekly Analysis

- The SPX500 has charted a series of higher troughs (HT), followed by higher peaks (HP).
- This puts the weekly trend into uptrend.
- The trendline gradient has shifted up from the green trendline to the orange trendline.
- This denotes an increase in the weekly chart's underlying bullish momentum.
- This increase in momentum is matched by the momentum-based stochastic moving into its upper quintile (green rectangle).
- The longer the stochastic maintains this position, the greater the likelihood of a higher SPX500 value ahead.

Overbought Condition

- Despite the strong underlying positive momentum, the SPX500's weekly RSI is above 80 (blue rectangle).
- This suggests that the index is overbought.
- It is unlikely that the RSI can maintain this level for an extended period and a normalisation is anticipated i.e., a movement back below 80.
- This normalisation will likely (but not necessarily) be accompanied by a pullback in the SPX500 index.
- If the pullback does not push below HT3, and charts the next higher trough in the series, the uptrend will be maintained.

Comment

• One of the key drivers of the SPX500 is the discount rate.
• The moderation of inflation connotes that the Federal Reserve is near the apex of its current rate hiking cycle.
• A temperance in interest rate hikes will be a tailwind for corporate profits, especially if the market starts pricing in a rate cuts.
• This will also allow the discount rate to stabilise, dampening any negative effects it may have on the SPX500's present value.
• Another key driver of markets has been technology and the story of artificial intelligence.
• These companies are growth aligned, meaning that they are sensitive to interest and the discount rate.
• Stabilisation of the discount rate may push profits upwards for these companies, which would support stock markets and the SPX500.