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More of the Same

Earlier in the week, JP Morgan Chase’s (JPM) takeover of First Republic Bank (FRC) calmed investors regarding regional banks and the commercial real estate crisis.


Today, the Fed announced another 0.25 bps hike to a new Fed Funds target of 5% to 5.25%, the highest since 2007. The next FOMC meeting is scheduled for June 13-14.


Earnings season will wind down in the next few weeks as Tech earnings have blown away the depressed consensus estimates on the street.


Inflation data, including the recent CPI report, suggests inflation continues to cool.

A warning from US Treasury Secretary Janet Yellen regarding the US government running out of cash as early as June 1 could become headline news.


The last time a debt ceiling debacle occurred was in 2011. Rating agency Standard and Poor’s downgraded the credit rating of the US debt, triggering a stock market selloff.

Although the stock rally from the October 2022 bottom still has legs behind it, the lack of market breadth and the recent failure of a follow-through breakout above key resistances warns of a neutral trading range environment into the summer months.

It is difficult to know what will occur in the next FOMC meeting and how Congress will handle the debt ceiling debacle.


Key drivers of the stock market over the past few months have been lower inflation, lower US interest rates, and a rebound in growth stocks, specifically several mega-cap technology-related names.


SPX remains remarkably resilient, but is it time to sell in May and go away?


The enclosed daily SPX chart hints at a higher low pattern and a short-term uptrend from the Oct 2022 bottom. Although this is a positive development, is the trend sustainable?


The Fibonacci retracements may play an increasing role in helping to identify key supports and resistances into the summer months.


Key initial resistance is 4,155-4,195.5, corresponding to the crucial 50% retracement (4,155) from Jan to Oct 2022 decline, Jun 2022 (4,177.5), Feb/May 2023 highs (4,195/4,187), and the top of the Aug 2022 triangle pattern (4,135).

Under favorable conditions, above 4,195 can extend the summer rally toward formidable secondary resistance at 4,308-4,325, coinciding with the late-Apr/May (4,307.5/4,308) and the Aug 2022 reaction highs (4,325), the top of the Nov 2022 uptrend channel (4,333), and the 61.8% retracement (4,312) from the Jan to Oct 2022 decline.


On the downside, initial support is 3,969-4,308 or the 50-day ma (4,038), 38.2% retracement (3,998.5) from Jan to Oct 2022 decline, and the 200-day ma (3,969).


Below this warns of a retest of 3,926 (Oct 2022 uptrend or bottom of Aug 2022 triangle) and 3,809-3,868 (Mar 2023 low, extension of the Jan 2022 downtrend, and the bottom of the Nov 2022 uptrend channel).


Source: Chart courtesy of StockCharts.com


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