Technical Analysis

S&P500 (SPX) Price Analysis – Dec 22, 2023

By LonghornFX Technical Analysis
Dec 22, 20234 min

Daily Price Outlook

The global market sentiment has continued its upward trend, gaining further traction on Friday as the S&P 500 bounced back from its recent dip. The Dow Jones Industrial Average surged, gaining 322.35 points, or 0.87%, reaching 37,404.35. Simultaneously, the Nasdaq Composite showed strength with a 1.26% increase to 14,963.87.

The S&P 500's positive movement was widespread, with over 450 names rising in the index. Micron Technology took the lead, jumping 8.6% after exceeding quarterly expectations and providing optimistic guidance for the current quarter. Salesforce also contributed to the Dow's gains, rising 2.7% following an upgrade from Morgan Stanley.

However, the market rebound comes after a brief downturn, where both the Dow and Nasdaq experienced their worst sessions since October, snapping nine-day winning streaks. The S&P 500 similarly posted its worst day since September.

Fed's Influence on S&P 500 and Global Interest Rate Trends

As mentioned earlier, the S&P 500 is bouncing back, thanks to hopes that the Federal Reserve might change its approach. Though the Fed has tried to cool expectations of speedy interest rate cuts in the next year, investors seem unconvinced. The CME Group's FedWatch Tool suggests a higher chance of a Fed rate cut by March 2024, with a predicted total of 150 basis points in cuts by year-end.

According to the latest info, the US economy grew by 4.9% in Q3, a bit less than the first estimate of 5.2%. Jobless claims went up to 205,000 but are still impressively low. The 10-year US Treasury bond yield is hanging around its lowest point since July. Meanwhile, the US Dollar is making a comeback. All these signs suggest a possible global trend of cutting interest rates, which could be good news for the S&P 500 and make things cozy for optimistic traders.

Global Monetary Policy Developments and Potential Impact on S&P 500

Furthermore, the recent drop in UK inflation, the lowest in two years, has sparked expectations that the Bank of England might cut rates in early 2024. Similarly, softer inflation data from the Eurozone indicates a potential for earlier rate cuts by the European Central Bank. Additionally, the US Core Personal Consumption Expenditure (PCE) Price Index could provide insights into the Federal Reserve's policy outlook. These developments suggest a global trend toward easing monetary policies.

Therefore, the potential rate cuts by major central banks, including the Bank of England and the European Central Bank, may positively impact the S&P 500 as investors anticipate favorable conditions for economic recovery and market growth.

S&P500 (SPX) Price Chart – Source: Tradingview
S&P500 (SPX) Price Chart – Source: Tradingview

S&P500 (SPX): Technical Analysis

On December 22, the S&P 500 Index exhibited a notable surge, rising by 1.03% to 4,746.76. This upward trajectory indicates a renewed vigor in the market, as the index surpasses its pivot point at $4,632. Looking ahead, the S&P 500 faces immediate resistance at $4,685, followed by further barriers at $4,772 and $4,826. On the downside, support levels are established at $4,545, $4,489, and $4,435, which will be crucial in the event of any retracement.

The technical indicators paint a complex picture for the S&P 500. The Relative Strength Index (RSI) stands at 65, hovering near the upper threshold of bullish sentiment but not yet indicating overbought conditions. This suggests that there is still some room for upward movement. However, the Moving Average Convergence Divergence (MACD) presents a contrasting scenario with a value of -2.87 against a signal of 45.17, hinting at potential bearish pressure.

Furthermore, the index's price action remains above the 50-Day Exponential Moving Average (EMA) of $4,731, typically a sign of a bullish short-term trend. Despite this, a bearish engulfing pattern observed on the daily timeframe, particularly below the $4,750 level, suggests a potential downtrend in the S&P 500.

Given these mixed signals, the overall outlook for the S&P 500 appears cautiously bearish, especially if it remains below the critical $4,775 level. In the short term, investors and traders should anticipate the index testing its immediate resistance levels. A successful breach of these could indicate a shift towards bullish momentum. Conversely, failure to overcome these levels might lead to a pullback towards lower support zones.

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