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S&P 500 Price Outlook: US Stocks Consolidate Around Key Level of Support

S&P 500 Price Outlook: US Stocks Consolidate Around Key Level of Support

Richard Snow, Analyst

US Equity News and Analysis

  • Markets on edge as China approaches its peak rate of infections (April 2022)
  • S&P 500 consolidates around significant zone of support in search of next directional move
  • Optimism around US Q4 GDP data revives notions of a ‘soft landing’
  • The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
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Markets on Edge as China Approaches Peak Covid Levels of April 2022

Reports out of China confirm 26,824 new Covid cases for Sunday which has put local authorities and financial markets on alert. Numerous flare ups have been recorded in Zhengzhou - the home of Apple’s Foxconn factory – Beijing, Guangzhou and Chongquing in the southwest.

The market response appears rather contained for the time being, with the US 10 year yield and US dollar receiving a bid, while oil trades flat. Asian equities recovered somewhat after gapping lower at the open. China’s more targeted approach to its Zero Covid policy was reaffirmed after China’s national congress and is really being put to the test with the latest rate of infections fast approaching the country’s April 2022 peak of around 29,000 new daily cases. With China such an integral part of world trade, an increase in sporadic infections poses a major threat to the recent bullish advance witnesses in US as well as European equity indices.

S&P 500 Technical Analysis: Major Zone in Play

From a technical point of view, the S&P 500 index remains within the medium-term uptrend but still adheres to the longer-term downtrend with prices remaining below the long-term descending trendline and the 200-day simple moving average (SMA). As such, the slowing bullish momentum and the imminent zone of support around 3950 remain key to future directional moves.

The 3950 level coincides with the Feb/March highs and, more recently, capped bullish momentum in June and October. The zone now acts as support, where a bounce off 3950 with follow through opens the index up to the 200 SMA and the major descending trendline. A break below 3950, highlights the January 2021 high of 3860 which coincides with the trendline support connecting the higher lows of the bullish move. Further levels of support appear at the 23.6% Fibonacci retracement of the 2022 move and the 38.2% retracement of the major 2020 move.

S&P 500 Daily Chart (E-Mini-Futures)

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Source: TradingView, prepared by Richard Snow

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US GDP Keeps ‘Soft Landing’ Possibility Alive

US GDP for Q3 surprised to the upside, coming in at 2.6% in its first estimate, after two quarters of contractions in the first half of the year. The Atlanta Fed produces a forecast of the current quarter’s GDP via its own ‘GDPNow’ tool, which as of the 17th of November projects an impressive 4.2% rise in GDP growth. The reading is meant to be used as a guide but certainly paints an optimistic picture for US equities with unemployment still relatively low at 3.7%

Atlanta Fed GDPNow Forecast Tool

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Source: Atlanta Fed, GDPNow

Despite October’s much needed drop in inflation, Fed policy and subsequent inflation prints remain central to US equities. Dovish members of the Fed have certainly helped spur the recent rise in equities alongside the lower inflation print, however, it remains to be seen if the US has seen a peak in inflation as the Fed have reiterated that “compelling evidence” of slowing inflation is required before considering a change in approach.

The economic calendar is fairly light this week but market participants will comb through the FOMC minutes of the November meeting in search of any clues regarding the pace of future rate hikes.

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--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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