ON FEB 15, 2024, the S&P 500 Index opened higher at 5,003.14 and continued its momentum throughout the day, closing up 0.58 per cent at 5,029.73, which marked a new record close. Despite some falls in the technology sector with Alphabet losing 2.2 per cent, Nvidia sliding 1.7 per cent and Microsoft dropping 0.7 per cent, banks and energy companies rallied, while Tesla climbed over 6 per cent.
Treasury 10-year yields retreated by two basis points to 4.23 per cent, with Fed swaps fully pricing in a rate cut in June. The decline in retail sales has provided relief to investors worried about overheated consumer demand, particularly after the concerns triggered by a strong inflation print earlier in the week.
Following a new all-time high on Monday (Feb 12), the S&P 500 index experienced a notable decline of about 1.4 per cent the next day, which was attributed to the Consumer Price Index (CPI) data. However, the index regained support at the upward trend line and the 20-day Simple Moving Average (SMA).
Moving forward, two possible scenarios might play out for the S&P 500 Index.
Bullish scenario
Since the beginning of 2024, the S&P 500 Index has exhibited robust performance, surging by more than 5 per cent from its starting level of 4,745.20. Notably, the index has surpassed its previous all-time high in January, and recorded a new closing high on Feb 15, indicating a strong momentum.
This upward trajectory is still valid as it continues to find support along the upward trend line as well as around its 20-day SMA. Although the Relative Strength Index (RSI) is suggesting that the index is nearly overbought, there is a possibility that it can retest its immediate support on the up-trend line and 78.6 per cent Fibonacci level which is approximately at 4,989.80, before potentially resuming another climb to keep the RSI under 70. Should the S&P 500 Index exceed Monday’s high of 5,048.39, it may initiate another upward trajectory towards the 100 per cent Fibonacci level, situated around the 5,235 region.
Bearish scenario
However, a failure to surpass the previous high in the near term could introduce bearish signals. The steepness of the up-trend line raises concerns about its sustainability, especially in relation to the current price action. In the shorter time frame, a technical top signal may emerge, signalling a potential reversal. In case of a bearish turn, immediate support is found at 4,989.80, followed by a more significant support level at the 61.8 per cent Fibonacci level, at around 4,800. This level also corresponds to the previous resistance observed from December 2023 to January, which may now act as a critical support-turned-resistance zone. A decline to this level could signify a pullback of approximately 4 per cent.
The writer is equities specialist at Phillip Securities
