- SPY again finds support at 21-day eMA.
- TSLA creates bullish engulfing at support.
- AMZN nearing record high after 7 weeks of gains.
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- 1. SPY finds support at 21-day exponential average again
- 2. Tesla bounces back
- 3. Amazon approaches record high
US index futures were slightly positive ahead of the US open at the time of writing. Profit-taking earlier in the week caused the markets to weaken a little, before staging a bit of a recovery on Wednesday.
The somewhat sluggish start to Q2 comes after stocks had been on a blinder for the last 5 months, thanks in part to AI hype and optimism about potential interest rate cuts by the Federal Reserve, and other major central banks, later in the year.
Since late October, the S&P 500 has shot up about 28%, so there was always the potential for some profit-taking which we got earlier this week.
The key question is whether that was it, before we start to see clear blue skies for the indexes again, or whether further weakness may be on the way.
While worries about valuations remain, and a larger correction may come at some point later this year, for now at least the bulls remain largely in control of price action.
As traders, we must therefore continue to focus on dip-buying strategies over bearish ones until the charts tell us otherwise.
So, we will discuss three high-potential bullish setups later on in the article.
Correction risks linger
Following the big rally over the past 5 months or so, the risks of a correction are high, especially when you consider for example that US oil prices are at $85 per barrel and governments are facing rising costs of servicing their debt as yields climb, making it increasingly difficult to continue borrowing without raising the debt-to-GDP ratios to alarming levels.
So far in 2024, these worries and concerns about over-stretched valuations have been shrugged off by investors. Let’s see if that changes as we head deeper into Q2 and 2024.
Bearish speculators still need to see a confirmed reversal signal of the charts given the strength of the rally in the last couple of quarters.
Once the charts start breaking key support levels and start respecting resistance levels, that’s when it might be wise to adopt a bearish approach to the markets.
What are the big gold rally and elevated yields telling us?
The big rally in gold despite rising bond yields suggests some investors are getting worried about the rising debt-to-GDP ratio, which could climb further if the economy were to turn lower.
In addition, we saw WTI crude oil prices climb above $85.00 per barrel this week, supported by purchasing managers in both Chinese and US industries reporting growth in activity, which surpassed expectations and raised inflation alarm bells.
Interestingly, while the ISM manufacturing PMI also raised inflation worries as the prices sub-index jumped to 55.8 from 53.3, those worries eased back somewhat after the Services PMI prices paid component fell to its lowest level since 2020, at 53.4 compared to 58.6 reported previously.
Additionally, a surprise build of 3.2 million barrels in crude oil stocks caused oil prices to retreat after hitting their best levels since October. As a result, US indexes managed to claw back some of their losses suffered earlier in the week, as concerns about services inflation eased somewhat.
That said, the US 10-year yields only eased a little, which is not what the stock market bulls would have liked to see.
What to expect for the remainder of this week?
Looking ahead to the rest of the week, the main focus will be on Friday when the March nonfarm payrolls figures are released.
I guess for stock market bulls, any signs of a soft landing would be welcome as that will keep the prospects of a rate cut in June alive. The bears will want to see further evidence of sticky inflation in the upcoming jobs report, and CPI next week.
3 trade ideas: SPY, Tesla, Amazon
The chart of SPY, which tracks the S&P 500, still looks bullish despite easing back earlier this week. It remains, for now, above the rising 21-day exponential moving average. Interestingly, this moving average again came to the rescue on Tuesday to provide a floor.
Since January, the market has found significant support on at least 5 or 6 occasions around this MA. Since breaking above it in early November, the SPY has held back above this MA during the entire phase of the rally.
Thus, what the bulls need to see is for the MA to continue holding as support. The bears will want to see a close below it to signal a change in the trend.
This 21-day eMA happens to come in right between the key support range in the 516.00 to 518.22 area, which was formerly resistance.
For as long as this area holds moving forward, the bulls will remain happy. A decisive break below it, however, could send the SPY to the next support around the 505.00 area.
The SPDR S&P 500 ETF Trust is an exchange-traded fund traded with the symbol SPY. Its purpose is to mirror the performance of the S&P 500 stock market index. This ETF holds the distinction of being the largest and oldest ETF in the United States.
Tesla (NASDAQ:TSLA) formed a bullish engulfing candle on its daily chart, after dropping earlier this week on the back of poor sales of EVs.
Key support at 160.00 remains intact, for now. The series of lower highs needs to break to confirm a bullish reversal. The most recent high comes in at 184.25.
Amazon.com (NASDAQ:AMZN) is nearing its July 2021 record high of 188.65 after 7 straight weeks of gains.
The stock has broken out of an ascending triangle pattern (bullish continuation formation) at 180.00, which is now going to be key short-term support to watch.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.