S&P 500 Still Bullish: What to Watch | chart watcher

It’s been a somewhat tumultuous week for the stock market, but overall the market seems to think everything is looking good.

The May employment report found changes in nonfarm payrolls (NFP) were stronger than expected. The number was counted at 272,000, significantly exceeding the expected number of 190,000. Last year, unemployment rose 4% and wages rose 4.1%.

What was the market’s initial reaction? Well, after the report was released, Treasury yields soared and stock futures fell sharply. But it didn’t last long. At one point, the S&P 500 hit a new all-time high but ended lower. As jobs increase, the likelihood of an interest rate cut decreases. But isn’t that what the market is expecting? In the long run, things look good. Let’s take a closer look.

Looking at the weekly chart of the S&P 500 ($SPX), it is clear that the trend remains strong, as does the momentum (see chart below). Until this changes, there is no reason to think the stock is experiencing a significant sell-off.

Chart 1. Weekly chart of the S&P 500 Index. The bullish trend is still in effect and momentum continues to grow stronger.Chart source: StockChartsACP. For educational purposes.

The outlook for the week remains strong, with the S&P 500 above its 21-week exponential moving average. (EMA). The index has bounced off the 21-week EMA (red line) and continues to trend upward, barring last week’s reversal (which did not have a significant impact on the bullish path).

Linear Regression Forecasting (LRF) Indicator (blue line) also indicates an upward trend. Since LRF is based on the line of best fit, it can be considered a good indicator for measuring short-term trends. The last point of this indicator predicts the price direction, pointing higher on the weekly chart.

Momentum also appears strong. The moving average convergence/divergence is trending higher and the Stochastic Oscillator is well in overbought territory. So, from a weekly perspective, the S&P 500 looks bullish.

Does the picture change on the daily chart? Let’s take a look.

Chart 2. Daily chart of the S&P 500 Index. It may be a bit choppy compared to the weekly chart, but the trend is still bullish and momentum is strong.Chart source: StockChartsACP. For educational purposes.

The daily chart is a bit more choppy than the weekly chart, but still suggests that the S&P 500 is trending upward. The market looked unstable at the end of May, but showed signs of recovery.

It is a good idea to watch the breadth indicator to see if it supports the trend. StockCharts.com has a variety of breadth indicators.Such as pre-rejection line, McClellan Oscillatorand Bullish Percentage Index (BPI).

The chart below displays the BPI for the S&P 500. A BPI above 50 indicates that the bulls have the upper hand. 70 represents an overbought level and 30 represents an oversold level. However, other thresholds can be used.

Chart 3. S&P 500 Bullish Percentage Index. BPI indicates that the S&P 500 is still going strong.Chart source: StockChartsACP. For educational purposes.

What’s interesting is that the S&P 500’s BPI hasn’t gone below 30 since late October. This means that the overall market continues to be strong.

Another confirming indicator is the continued low Volatility Index ($VIX). Investors are showing no signs of panic.

Bond market activity

One interesting piece of the stock market puzzle is the bond market, which tends to move in response to employment data. As yields fell, bond prices began to rise. The daily chart of the iShares 20+ Year Treasury Bond ETF (TLT) below shows that TLT has broken above its downward trendline and made its last significant high (May 16th). But Friday’s price action lifted Treasury yields and pushed bond prices below their May highs.

Chart 4. 20+ Year Treasury Bond ETF (TLT) Daily Stock Chart. Bond prices fell after breaking through their previous highs. It remains to be seen whether this is a correction or a sign that bonds are still struggling.Chart source: StockChartsACP. For educational purposes.

Although one-day movements do not necessarily indicate a trend reversal, it is a good idea to keep an eye on the bond market’s movements. Add this chart to your ChartLists and watch to see if TLT breaks above the May high. If so, this further confirms that bonds are trying to break out of their lows.

Another point not to be missed is the movement of the US dollar, another asset that reacts to jobs data. The dollar surged in today’s trading. So we’re in a situation where bond yields are soaring, the value of the dollar is soaring, and stocks are relatively flat. At the other end of the spectrum, metals become thicker. Do metal traders know about inflation data?

It all depends on the actions of the next data-rich state. There are Consumer Price Index (CPI) and FOMC meetings. You can be sure we’ll be watching the CPI data closely, as today’s jobs data showed wages data to be higher.

Let’s see what the Fed says next week. CME FedWatch Tool That could change, although the September meeting suggests a rate hike is unlikely. The key point to listen to is whether inflation is falling to the level the Fed wants. The market held out the possibility of just one interest rate cut this year. Otherwise, the market may react either way.

take out

If technical indicators look good, it means the stock market is still going strong. But look at the breadth of the market and the VIX. If they start to change direction (and it has to be a significant reversal), you may start to worry. In other words, if you think the stock market is going up and you’re going to sell, wait until you see a confirming indicator that the market is going to sell.

weekend wrap up

• The S&P 500 closed down 0.11% at 5,346.99, while the Dow Jones Industrial Average closed down 0.22% at 38,798.99. The Nasdaq Composite Index closed at 17,133.13, down 0.23%.
• $VIX was down 2.86% at 12.22.
• Top performing sector this week: Technology
• Worst performing sector this week: Utilities
• Top 5 Large Cap SCTR Stocks: NVDA; MicroStrategy Inc. (MSTR); Super Microcomputer (SMCI); Vistra Energy (VST); AppRobin (APP)

On the radar next week

• May CPI
• Fed’s interest rate decision and press conference
• May PPI
• June Mortgage Interest Rates
• Preliminary Michigan Consumer and Inflation Expectations for June
• Fed speech (Goolsbee, Cook)

disclaimer: This blog is for educational purposes only and should not be construed as financial advice. You should not use any of our ideas and strategies without first evaluating your personal and financial situation or consulting a financial professional.