Technical Analysis

S&P500 (SPX) Price Analysis – July 05, 2024

By LonghornFX Technical Analysis
Jul 5, 20244 min

Daily Price Outlook

The global market sentiment has turned bullish, highlighted by the S&P 500 index's impressive surge to a new high of 5,539.27 on Friday, up 0.51%. This record-breaking rally was driven significantly by strong gains in the technology sector, particularly notable among megacap stocks like Tesla and Nvidia.

Despite concerns raised by recent economic data, including softer-than-expected readings in indicators such as ADP's private payroll growth and a contraction in the ISM Services PMI, investors remained optimistic.

Meanwhile, the decline in bond yields further bolstered sentiment, with traders speculating that these developments might prompt the Federal Reserve to consider interest rate cuts sooner rather than later.

Impact of Weakening US Dollar and Economic Data on Investor Sentiment and S&P 500 Performance

On the US front, the US dollar extended its downward trend, marking its fourth consecutive day of decline and hitting its lowest level in more than three weeks. This weakening trend is largely attributed to growing expectations of imminent rate cuts by the Federal Reserve, fueled by recent disappointing economic data releases.

The prospect of lower interest rates typically diminishes the dollar's appeal, enhancing the competitiveness of US exports and bolstering earnings for multinational corporations listed on the S&P 500.

On the data front, the US ISM Services PMI sharply declined to 48.8 in June, the largest drop since April 2020, well below expectations of 52.5 after May's 53.8.

The ADP Employment report showed US private businesses added 150,000 jobs in June, the smallest increase in five months, missing expectations of 160,000 and down from a revised 157,000 in May.

Therefore, the weakening US dollar and disappointing economic data, including a sharp decline in the ISM Services PMI and lower-than-expected job additions per the ADP report, supported investor expectations of Fed rate cuts, bolstering the S&P 500's resilience amid economic concerns.

Upcoming Nonfarm Payrolls Report and Its Impact on the Economy and Fed Policy

Looking ahead, market attention will pivot to the eagerly awaited Nonfarm Payrolls report, scheduled for release later today. Analysts forecast a moderate uptick of 190,000 jobs in June, following May's strong figure of 272,000.

The unemployment rate is anticipated to remain unchanged at 4%, suggesting stability in the labor market.

Additionally, focus will be on Average Hourly Earnings growth, expected to show a slight slowdown compared to the previous month. These metrics will offer vital insights into the US economy's health and could impact future Federal Reserve policy decisions.

S&P 500 Price Chart - Source: Tradingview
S&P 500 Price Chart - Source: Tradingview

S&P 500 - Technical Analysis

The S&P 500 is trading at $5537.01, up 0.51% in early trading. The 4-hour chart highlights several crucial technical levels that could influence market direction. The pivot point is located at $5522.92, serving as a significant marker for potential bullish or bearish movements.

Immediate resistance is seen at $5544.17, with subsequent resistance levels at $5556.37 and $5569.74. Should the index break above these levels, it could signal a continuation of the upward trend, potentially reaching new highs.

On the downside, immediate support is identified at $5507.19, followed by $5494.59 and $5475.71. These support levels could offer buying opportunities if the index experiences a pullback.

The Relative Strength Index (RSI) is currently at 72, suggesting that the S&P 500 is nearing overbought territory. An RSI at this level often indicates that the asset may be overvalued, which could precede a price correction. Therefore, traders should be vigilant and watch for any signs of a potential reversal.

The 50-day Exponential Moving Average (EMA) is positioned at $5472.05, reinforcing the bullish trend as long as the price remains above this average. The EMA acts as dynamic support, and maintaining a price above this level supports the ongoing bullish sentiment.

Considering the current market dynamics, an effective strategy would be to enter a buy position above $5555. Setting a take-profit target at $5575 aligns with immediate resistance levels, providing a favorable risk-reward ratio while capturing potential gains.

A stop-loss at $5535, just below the pivot point, helps limit downside risk from unexpected market movements.

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