S&P 500 weekly update: Sentiments unwinding from previous oversold conditions

S&P 500 weekly update

Wall Street staged its best week in nearly a year, as a series of softer economic data were cheered for supporting a more balanced Federal Reserve (Fed)’s rate outlook. The positive market reaction to the soft US jobs data last Friday suggests that market participants are willing to take ‘bad news’ for the economy in stride, as long as the downside surprise is not too significant to drive out soft landing hopes. The S&P 500 was up close to 5% for the week, with greater flows into rate-sensitive sectors as rate hikes into 2024 are being priced out, just as we tread into the more favourable seasonal period of the year (Nov-Dec).

The CNN Fear and Greed Index has reversed alongside the risk rally, but remains in “fear” territory for the sixth straight week, which may provide additional room for previous bearish sentiments to unwind further. Similarly, the index’s market breath (% of stocks above their respective 100-day and 200-day moving average (MA)) have clearly picked up from previous extreme oversold levels, but still stand at a distance from more neutral levels. The latest Commodity Futures Trading Commission (CFTC) data also revealed that large speculators have fully unwound their S&P 500 net-short positioning and has reversed to net-long for the second straight week.

Technical analysis: S&P 500 heading to retest Ichimoku cloud resistance

Following a brief dip below the 200-day MA line in late-October this year, the S&P 500 has reclaimed the key MA line last week and are now heading to retest its Ichimoku cloud resistance on the daily chart. Recent upside has also brought the index back within its ascending channel pattern in place since its October 2022 bottom. Ahead, its recent October 2023 high at the 4,400 level may be on watch next, with any successful move above the 4,400 level potentially paving the way for the index to set its sight on its year-to-date high at the 4,600 level.

Technical analysis: Nasdaq 100 index back at upper channel resistance

Having traded in a falling channel pattern since July this year, the Nasdaq 100 index has managed to bounce off the lower channel trendline support around the 14,200 level last week. A bullish crossover was displayed on its daily moving average convergence/divergence (MACD) for now, as a sign of reversing momentum to the upside. One may still point towards the presence of a bullish flag formation in place, with immediate resistance to overcome at the near-term upper channel trendline at the 15,200 level.