S&P 500, Nasdaq 100 Retain Bullish Structures, But …

The S&P 500 is up 4.49% month-to-date

• A drop in U.S. inflation pressures proved to be a sigh of relief for U.S. equity markets.
• Both the S&P 500 (/ESH4) and Nasdaq 100 (/NQH4) remain in their uptrends from the October 2023 and January 2024 swing lows.
• The Russell 2000 (/RTYH4) has been rebuffed in a bullish breakout attempt.

U.S. equity markets had been consolidating this week as traders awaited the release of the January U.S. personal consumption expenditures (PCE) index, the Federal Reserve’s preferred gauge of inflation.

The data carried particular importance following the upside surprise in the January U.S. consumer price index (CPI) report, elevating fears that the Fed wouldn’t be able to begin its rate-cut cycle in the first half of the year.

June rate-cut odds increase

The collective sigh of relief this morning emanated from the rates world, where odds of a June rate cut rose to 65.3%, up from a low of 56% earlier this week. U.S. Treasury yields have ticked lower, removing one potential obstacle or albatross around stocks’ necks in recent days.

The resiliency of the S&P 500 (/ESH4) and Nasdaq 100 (/NQH4) hint that price action this week has been a flagging pattern (great for theta burn!), which in context of recent uptrends suggests that the path of least resistance remains to the upside.

The caveat, however: The Russell 2000 (/RTYH4) attempted to breakout today but has since returned to its triangle–a potential harbinger that recent sideways action across the indexes may not yet be over.

/ES S&P 500 price technical analysis: daily chart (July 2023 to February 2024)

The past few days may have been culminating in a bull flag for the S&P 500 (/ESH4) on lower time periods. The technical structure on the daily remains bullish, as far as the uptrend from the October 2023, January and February 2024 swing lows is still intact.

Corrections need not occur in price; time itself can serve as correction to a sharp uptrend. Indeed, that may be transpiring.

While slow stochastics and moving average convergence/divergence (MACD) have started to pull back after showing signs of divergence and exhaustion, /ESH4 remains above its daily 5-, 13- and 21-day exponential moving average (EMA) envelope, which is in bullish sequential order.

Moreover, /ESH4 has been treating its daily 5-EMA (one-week moving average) as support throughout this week, a clear indication that traders aren’t ready to hand the baton over to the bears yet.

As was noted last week, channel resistance comes in closer to 5200 over the next week. But it should be noted that support comes in at 5055/65 in the coming days, and a break below there would open a retest of the daily 21-EMA (one-month moving average), which has been consequential during the rally over the past few months.

Below the daily 21-EMA, the technical outlook would necessarily turn bearish.

/NQ Nasdaq 100 price technical analysis: daily chart (June 2023 to February 2024)

Like /ESH4, the Nasdaq 100 (/NQH4) has been flagging in recent days, which in the context of the uptrend, suggests that the next move should be the upside. Nevertheless, new highs have not materialized; /NQH4 remains within the confines of an ascending triangle with resistance near 18145. The path of least resistance may set be higher, but /NQH4 needs to make a push from here lest the multi-month uptrend begins to crack.

/RTY Russell 2000 price technical analysis: daily chart (July 2023 to February 2024)

Last week it was observed that a broader symmetrical triangle may be forming since December 2023, which intimates that rangebound price action may be in the cards for the next several weeks. Contextually, support near 1900 and resistance near 2100 would appear stable for the near future … directionless strategies like short strangles or iron condors may prove viable.”

The failed breakout attempt thus far today in the Russell 2000 (/RTH4) warns that more sideways choppiness could be ahead. A close above 2071.2 would offer more confidence that stocks are indeed ready for their next leg up.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.