Trade Of The Week: Time For The SPX500_m To Breakout?

The next few days promise to be volatile for the S&P 500 thanks to fundamental and technical forces.

After bouncing within a range for the past two weeks, the index could be waiting for a fresh catalyst to trigger a major bullish or bearish breakout.

Taking a brief look at the technical picture, prices remain in an uptrend despite the period of consolidation with support at 4070 and resistance at 4160. Although the index is trading comfortably above the 50,100 and 200-day SMA, the Relative Strength Index (RSI) signals that prices are flirting near overbought conditions.

Here are 3 reasons why the SPX500_m could breakout this week…

1. US earnings season kicks off

It’s that time of the year again!

First quarter earnings season kicked off last week, led by banking giants JPMorgan Chase, Wells Fargo, and Citigroup who all comfortably beat expectations for earnings. Given the recent chaos revolving around the banking sector, these results were certainly a welcome development. Nevertheless, fears about a US recession still loom. This could encourage investors to closely scrutinize pending results from the likes of Charles Schwab, Goldman Sachs, and Bank of America among many others this week. When factoring in how financial stocks account for nearly 13% of the S&P 500, their results are likely to trigger volatility.

This week also see’s the release of Tesla’s Q1 results which are expected to show a decline in earnings due to aggressive price cuts. When considering how Tesla is within the top 10 holdings in the S&P 500 and accounts for roughly 1.43% of the total index, its results could spark some action.

Ultimately, if the earnings impress and boost risk sentiment, this may inspire bulls to breakout above the 4160 resistances. However, a set of disappointing earnings could see the S&P500 slip back towards 4070.

2. Key US economic data and Fed speeches

There are some key US economic releases and Fed speeches that could influence the S&P 500 this week.

On Monday, Richmond Fed President Thomas Barkin will be under the spotlight after stating last week that policymakers still have a long way to go to tame prices. Later in the week, there will be a host of Fed speeches from other policymakers which may influence the S&P 500.

All eyes will be on the Fed Beige Book on Wednesday. If the Beige Book suggests that US economic conditions may be deteriorating, this may prompt the Fed to switch into lower gear on rate hikes. Alternatively, if the Beige Book reiterates its previous release by suggesting that the US economy remains resilient, this hawkish development may enforce pressure on the S&P 500. Attention will also be directed on the US weekly initial jobless claims and US PMI figures for April at the end of the week.

The SPX500_m may find itself under renewed pressure if US economic data beat expectations, the Fed Beige book suggests that the US economy remains on a firm footing and policymakers strike an overall hawkish tone. Alternatively, SPX500_m bulls could attack if US data disappoints, policymakers sound cautious and the Fed Beige book adds to the overall caution.

3. Technicals are pointing to potential SPX500_m breakout

As highlighted earlier, the SPX500_m could be gearing for a major breakout on the daily timeframe. Although the overall trend looks to be bullish, it may take a potent fundamental spark to conquer the 4160 resistance which was last tested in February 2023. A solid breakout above this point could encourage an incline towards 4200 and levels not seen since August 2022 around 4315. Alternatively, should 4160 prove to be a tough nut to crack, this may open the doors back toward 4070 and 4035 – where the 50-say SMA resides.