S&P 500, Nasdaq 100 Gearing Up for All-Time Highs?

The S&P 500 is up 3.13% for the month so far

• The S&P 500 set a fresh monthly high today, exceeding 5230. 

• Both S&P 500 and the Nasdaq 100 have traded above former support levels that kept prices elevated in March and early-April, suggesting that bulls are back in the driver’s seat. 

• Quiet earnings and macro calendars this week have allowed volatility to contract; the VIX is barely holding above 13. 

U.S. equity markets are off to a strong start this May, defying financial pundits who throw around catchy-yet-inaccurate phrases like "sell in May and go away."

Having survived the macro storm and the barrage of earnings from the Magnificent 7 companies, U.S. equity markets find themselves trading above key technical levels that suggest bulls are back in charge. 

As for sentiment? That’s improving as well. The AAII Investor Sentiment Survey showed a bull/bear spread of +17% for the week ended May 8, a dramatic swing higher from its -1.8% reading for the week ended April 24.

That’s still not yet near the highs of the year (week of March 27, +27.6%), which underscores the point that while U.S. equities’ rally off the April lows has been impressive, we’re not yet back near exuberance territory yet. 

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

Two weeks ago. we observed “the question in front of us now is whether the low from mid-April is a low or the low ... [the S&P 500] /ESM4 is effectively facing a zone between 5140/70 that if it can break through, an important low would have been established that may pave the way for a return to the yearly high.”

Now well above 5140/70, /ESM4 has seen the downtrend from the April intramonth swing highs broken while it has traded back above the critical daily 21- and 34-day exponential moving average (EMA) cloud. Momentum is increasingly positive, with /ESM4 above its daily 5-, 13-, and 21-EMA cloud as well. Slow stochastics are nestled in overbought territory—a key characteristic of the rally during 4Q’23 and 1Q’24—and moving average convergence/divergence (MACD) is trending higher through its signal line.  

A return to all-time highs is favored as long as 5140/70 holds as support. Declining volatility (IVR: 13) means expressing bullish views may be suitable via ATM call spreads. 

/NQ Nasdaq 100 price technical analysis: daily chart (October 2023 to May 2024) 

Similarly, in the prior update, we noted: “[the Nasdaq 100] /NQM4 also has its daily 21-/34-EMA cloud looming ahead near 17891/981, creating a zone of resistance between 17890/18000. A return above this area would reinforce the bottoming narrative.”

Now trading at 18197, /NQM4 faces a new hurdle: the descending trendline from the March and April swing highs. Above 18300, the path to all-time highs becomes unobstructed on a technical basis.

While relatively low volatility (IVR: 16.2) suggests that long ATM call spreads are an appropriate way to express a bullish bias, raw implied volatility (IVx: 17.7% at 42DTE) is not dissimilar from that in the Russell 2000 (/RTYM4), where one would find it appropriate to short ATM or ITM put spreads; either is acceptable for /NQM4. 

/RTY Russell 2000 price technical analysis: daily chart (October 2023 to May 2024) 

The bulls are likewise in control in /RTYM4. We were waiting to see if “the area between 2024/35” was cleared, as until then it would be “difficult to distinguish, on a technical basis, whether or not the recent rally has continuation potential; failure here puts the April low at 1915.8 back into play.”

The bulls indeed prevailed, with /RTYM4 clearing 2024/35 and breaking out of the downtrend from the April intramonth swing highs. The momentum profile has improved (and is reminiscent of the characteristics displayed in early-February) putting into play a return to the April 10 bearish outside engulfing bar high at 2114. The bullish perspective is invalidated below 2024/35. 

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

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