Last Friday, the S&P 500 Index sold off at the close as we reduced risk flows across the board due to news of imminent Iranian retaliation. Over the weekend, Iran launched its operation with drones and missiles against Israel, but almost all of them were intercepted and there were no casualties. Ultimately, Iran declared the operation considered complete and we received reports of a general de-escalation, with the United States telling Israel it would not support retaliation. We may see some positive risk sentiment and likely a discrepancy with the economic data that will then be the focus.
S&P 500 Technical Analysis – Daily Timeline
S&P 500 daily
On the daily chart, we can see that the S&P 500 has been diverging with the MACD for a long time. This is usually a sign of weakening momentum, often followed by pullbacks or reversals. Breaking the trendline and moving average 21 could bode ill for buyers as it would open the door for a bigger correction towards the 4713 level. Price has fallen to the first key support level at 5104 last Friday following some risk aversion flows over the weekend. This is where we can expect buyers to step in to position themselves for a rally to a new all-time high. Sellers, on the other hand, will want to see the price drop to target the next support at 5057.
S&P 500 Technical Analysis – 4 hour time frame
S&P 500 4 hours
On the 4-hour chart, we can see that the recent price action may have formed what looks like a bull flag, although price will need to break out higher to confirm this. We can also see that from a risk management perspective, sellers will have a much better risk to reward setup around the upper limit of the flag where they will also find the confluence of the previous strong resistance area and the average red mobile 21. Buyers, on the other hand, will want to see the price rise to invalidate the bearish setup and increase bullish bets to a new all-time high.
S&P 500 Technical Analysis – 1 Hour Time Frame
S&P 500 1 hour
On the hourly chart, we can see that apart from resistance and the moving average, sellers will also find the 61.8% Fibonacci retracement level, adding further confluence around level 5180. Given the announcement of ‘a de-escalation, we could indeed take a certain risk on the flows today and progress towards these levels.
Events to come
This week is a bit empty on the data front with only two notable reports. Today we have the retail sales data while on Thursday we will get the latest US jobless claims numbers.
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