SPX500 currently trades in sweet spot.

  • SPX500

Source: www.tradingview.com

The SPX500 has traded to new all-time highs over the last week. Technically, the green 5-week EMA is bullishly above the orange 10-week EMA. The RSI is on the positive side of 50 but is not in overbought territory.

A number of key variables are contributing to the stock market's current strength. Inflation seems to be moderating, the Fed is unlikely to hike rates with the path of least resistance to the downside and fundamental earnings have generally been supportive.

It is worth monitoring the data though especially when it comes to economic growth.

  1. A noteworthy slowdown that points to contraction means that rates will be coming down for the wrong reason. Instead of a tailwind, the market will likely be facing tough resistance.
  2. However, a strong reacceleration in growth may lead to a boost to inflation and, if this is too hot, will nullify the rate cutting scenario, which the market is currently betting on. Again, this will lead to a pressure applied to present values.

Until the path become clearer, we seem to be trading in a sweet spot with neither too much weakness nor strength being problematic. As long as the RSI remains above 50 and not overbought, there will be an underlying momentum that is supportive of stocks. However, we should start factoring in a possibility of volatility if data suggests a movement away from the current Goldilocks setup.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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