The S&P 500 (SPY) had a strong week, reaching the long-awaited target of 5400-412. This prompted a re-assessment rather than a rush to close positions and go short. The positive momentum was supported by slowing inflation and potential rate cuts on the horizon, signaling a clear path for a sustained rally. However, it’s important to note that markets can reverse even on good news when the trend is exhausted. Analysts suggest that the S&P 500 may be gearing up for a major reversal, with two higher timeframe exhaustion signals expected in the coming weeks.
Looking at the monthly chart, the June bar is trading in uncharted territory with minor Fibonacci expansions and measured moves in the vicinity. The next significant level to watch for is the 1.618* expansion of the 2021-2022 bear market at 5638. While it’s uncertain if this level will be reached in the current rally, it could be a future target.
On the weekly chart, the bullish bias persisted, with the market showing strong upward movement. However, caution is advised as market sentiment can shift quickly. Key support levels to monitor include 5375 and 5265, with the possibility of a reversal in the coming weeks.
In daily trading, Wednesday saw a notable rally following positive CPI data. The market closed at new all-time highs, indicating strong buyer interest. The lows of Wednesday and Thursday are now crucial support levels, with a break below 5402 potentially signaling a bearish turn.
Looking ahead, key economic data releases next week, including the Empire State Manufacturing Index, Retail Sales, Unemployment Claims, and Flash PMIs, will provide further insight into the state of the US economy. The market will be closed on Wednesday for Juneteenth National Independence Day, adding to potential volatility.
In conclusion, while the S&P 500 continues to show bullish momentum in the short term, caution is advised as exhaustion signals on higher timeframes suggest a possible reversal in the coming weeks. Traders should closely monitor key support and resistance levels for potential shifts in market direction.