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The S&P 500 received a notable boost from positive risk sentiment on Tuesday, sending the index to a fresh all-time trading high, around the 3,950 level. Expectations that the United States economy is starting to enter into recovery mode largely drove US stocks higher.
Technical traders next big target is almost certainly to be the 4,000-resistance level, and indeed it is a target that looks increasingly achievable. With the fundamental backdrop improving in the United States the chances of further upside in the S&P 500 are very high.
From a technical standpoint a number of bullish price patterns are pointing to the ongoing upmove breaking 4,000 and extending towards the 4,100 to 4,700 regions. This is important, because even though the index is trading at an all-time high, a market top does not appear to be insight and traders still have lofty upside price targets.
DBS bank have also talked down the potential of an imminent market top, the bank noted “It is not untrue that on a forward price-to-sales (P/Sales) basis, valuation for US Technology is looking stretched at 6.5x. But this ratio belies the fact that profitability for US Technology companies is on the rise. This is affirmed on a forward P/E basis, which shows valuation for the sector is nowhere near the levels seen during the dot-com bubble.”
Fund flows into the index have turned negative since January, despite the S&P 500 being on the rise. This would imply that some funds are taking profits. However, these funds may look to enter back into the market if the US economy starts to pick-up again.
In terms of positive price catalysts, upcoming US stimulus, improved global consumption, and putting aside most if not all of the COVID-19 restrictions over the coming months are all likely to create solid tailwinds for the index.
Near-term risks for the S&P 500 index include the FOMC meeting minutes, US retail sales, and manufacturing data. The upcoming PMI manufacturing number from the US could be a big deal, due to the prices paid component inside the report, which will cast a further spotlight on US inflation.
Something else to consider is market sentiment. That ActivTrader sentiment platform shows that nearly 60 percent of traders are bullish towards this market. I believe this is a positive because the sentiment dynamic is not overly bullish or bearish.
Usually, we should look to fade sentiment extremes. However, 59 percent is still a healthy ratio, which would imply that more upside is possible before a sentiment extreme takes place.
S&P 500 Short-Term Technical Analysis
The four-hour time frame shows that a large, inverted head and shoulders pattern remains in play while the index trades above the 3,870 level. The overall size of the pattern implies more gains towards the 4,080 level.
Any pullbacks towards neckline support, around the 3,870 level would be a solid area to look to enter into the prevailing bullish trend
Downside risks would increase if the 3,870 level was broken, and we could see a deeper pullback towards the 3,775 region.
Source By ActivTrader.
S&P 500 Medium-Term Technical Analysis
Looking at the daily time chart, the central focus remains a massive bullish reversal pattern which is in control in play and has been in play since the breakout above the 3,330 technical level.
The overall size of the inverted head and shoulders pattern suggests that a blockbuster rally towards the 4,700-resistance level should be expected over the medium to long-term.
Source By ActivTrader.
