Trade Of The Week: SPX500_m bulls charge to record highs

• S&P500 hits all-time high

• US earnings + key data in focus

• Prices bullish for RSI overbought

• Key level of interest at 4798

• Can bulls maintain hunger for gains?

US equity bulls were back in action last Friday as optimism over expected Fed rate cuts and surging tech stocks pushed the SPX500_m to all-time highs!

Note: The SPX500_m tracks the underlying S&P 500 index

The index has not only topped the previous record set in January 2022 but also confirmed that it has been in a bull market since the October 2022 low. When considering the shaky start to the new year, it looks like SPX500_m bulls have regained their mojo.

Taking a quick look at the technical picture, prices are firmly bullish on the daily charts. However, the Relative Strength Index (RSI) has hit 70, signalling that prices are heavily overbought.

With all the above said, this could be a wild week for the SPX500_m due to technical and fundamental forces. Given how prices are trading at record highs, the key question is whether bulls can maintain their hunger for more gains.

Here are 3 key factors that could influence the index:

1. US earnings season

US earnings season is in full swing with some of the largest companies in the world publishing their quarterly results.

The likes of Netflix, Tesla, Intel, and Visa among other companies listed in the S&P500 will be under the spotlight over the next few days. Both Netflix and Tesla are expected to report record quarterly revenues which could provide fresh support to the index. Intel is forecast to post its first revenue and profit growth in almost two years while Visa’s revenue could be supported by a better-than-expected holiday season.

• The SPX500_m could push higher if overall earnings exceed market expectations.
• If earnings disappoint, the SPX500_m could trade lower.

2. Key US data

The string of incoming key US data may influence expectations around Fed rate cuts – ultimately impacting the SPX500_m which has a handful of tech stocks.

All eyes will be on the Q4 GDP figures, PMIs, and latest PCE report for fresh insight into the health of the largest economy in the world. The US economy is expected to have expanded by 1.9% in Q4 while the Core Personal Consumption Expenditure is forecast to cool 3% in December vs 3.2% in the prior month. Given the market sensitivity to Fed cut expectations, the US data could translate to increased market volatility this week.

• Should overall US economic data fuel speculation around Fed rate cuts, this could push the SPX500_m higher.
• A set of strong reports and hotter-than-expected inflation figures may dampen hopes on early Fed rate cuts, dragging the SPX500_m lower.

3. Technical forces

The SPX500_m is firmly bullish on the daily charts as there have been consistently higher highs and higher lows. Prices are trading above the 50, 100, and 200-day SMA while the MACD trades above zero. Although bulls are in a position of power, the RSI signals that prices are heavily overbought – suggesting a potential throwback down the road.

• The current upside momentum could take prices towards the next round psychological level at 4900.
• Should prices slip back below the 4798 dynamic support, this could open a path back towards 4700.