Stocks rallied on the first trading day of June as investors cheered the deal to resolve the debt-ceiling crisis. Traders will turn to tomorrow’s morning U.S. employment report and the unemployment rate for guidance on the current state of the economy and, most importantly, gauge whether the Fed will pause on a rate hike in the next FOMC meeting on June 13-14.
The stock market via the S&P 500 Index (SPX – 4,221.02) remains in a sideways trading range. However, the index is trying to break out of two critical resistance dating back to the Summer of 2022.
Will the Bulls finally prevail after multiple attempts at a breakout?
Or is this another disappointing head-fake?
After the 1,327.04 points decline or 27.54%, SPX Index has developed a constructive technical base since the Oct 2022 low (3,491.58). The breakout in late-Jan 2023 above the Jan 2022 downtrend (4,035) hints at a trend reversal to the upside. A golden cross buy signal in early Feb 2023 also signals the start of the next bull trend.
However, SPX still must clear two key resistances to solidify the Oct 2022 bottom and reaffirm the next bull trend. The first hurdle or initial resistance is 4,177.5-4,195, corresponding to the Jun 2022 and Feb 2023 highs and the top of the Nov 2022 ascending triangle. The second challenge is formidable intermediate-term resistance at 4,325.28, coinciding with the Aug 2022 reaction high and the subsequent island reversal -19.28% Sept to Oct 2022 deep correction.
Above 4,177.5-4,195.5 finally confirms Nov 2022 ascending triangle breakout, signaling a rally to intermediate-term resistance at 4,307.5-4,325 (61.8% retracement from Jan-Oct 2022 decline, May 2022 and Aug 2022 reaction highs, and the subsequent island reversal leading to the -19.28% Sept-Oct 2022 deep correction).
Above 4,325.28 reaffirms an intermediate-term price breakout. If the SPX Advance-Decline line, MACD price momentum, and the RSI overbought/oversold indicators also break out, this would be bullish. Under this scenario, SPX can rally to 4,582-4,637 (Mar 2022 high and the Nov 2022 ascending triangle breakout target) and above this 4,818.62 (1/4/22 all-time high) and 5,159 (May 2022 ascending triangle breakout target).
Market pullbacks have been brief and shallow in recent weeks, a positive sign to suggest buying pressure has been building in anticipation of a breakout.
Nonetheless, initial support rises to 4,104-4,115 or the 50-day ma and 5/24/23 low. Secondary support also moves up to 4,048-4,049 (Apr/May 2023 lows), 3,975-3,992 (200-day ma and Oct 2022 uptrend), and 3,876 (Nov 2022 uptrend).
Violation here warns of a decline to critical intermediate-term support at 3,764.5-3,805 (Dec 2022 and Mar 2023 higher lows and the extension of the Jan 2022 downtrend breakout). Breach of the Dec 2022 and Mar 2023 lows negates a higher low pattern and warns of a retest of the Oct 2022 reaction lows (3,491.58).
