- The SPX500 has charted a series of higher troughs (HT), followed by higher peaks (HP).
- This puts the weekly trend into uptrend.
- The trendline gradient has shifted up from the green trendline to the orange trendline.
- This denotes an increase in the weekly chart's underlying bullish momentum.
- This increase in momentum is matched by the momentum-based stochastic moving into its upper quintile (green rectangle).
- The longer the stochastic maintains this position, the greater the likelihood of a higher SPX500 value ahead.
- Despite the strong underlying positive momentum, the SPX500's weekly RSI is above 80 (blue rectangle).
- This suggests that the index is overbought.
- It is unlikely that the RSI can maintain this level for an extended period and a normalisation is anticipated i.e., a movement back below 80.
- This normalisation will likely (but not necessarily) be accompanied by a pullback in the SPX500 index.
- If the pullback does not push below HT3, and charts the next higher trough in the series, the uptrend will be maintained.
- One of the key drivers of the SPX500 is the discount rate.
- The moderation of inflation connotes that the Federal Reserve is near the apex of its current rate hiking cycle.
- A temperance in interest rate hikes will be a tailwind for corporate profits, especially if the market starts pricing in a rate cuts.
- This will also allow the discount rate to stabilise, dampening any negative effects it may have on the SPX500's present value.
- Another key driver of markets has been technology and the story of artificial intelligence.
- These companies are growth aligned, meaning that they are sensitive to interest and the discount rate.
- Stabilisation of the discount rate may push profits upwards for these companies, which would support stock markets and the SPX500.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.