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Asset Watch
Tuesday, September 24, 2024
Rumours became reality last week, as investors celebrated the FOMC’s 50 basis point rate cut. And with Chairman Jerome Powell striking a dovish tone emboldening the bulls, the S&P 500 rallied to a new record high.
Economic data also outperformed last week, so could the index’s technical and fundamental backdrops ripe for a run above 6,000?
BMO Capital Markets raised its year-end S&P 500 price target to 6,100 on Sep. 20, telling clients, “We continue to be surprised by the strength of market gains and decided yet again that something more than an incremental adjustment was warranted.”
The team noted that since 1950, when the S&P 500 rallies between 15% and 20% through Q3, the average Q4 return is 6%, which is roughly 50% higher than the average for all years。
After some trepidation following Powell’s press conference, the S&P 500 soared on Sep. 19 and broke out above its July 2024 highs (the horizontal white line). The index also successfully retested the breakout amid the profit-taking on Sep. 20, which is depicted by the red candle on the far right of the chart.
Given the heightened volatility witnessed recently, and the tough September and early-October seasonal periods, the 5-day moving average (the blue line) is an excellent metric to monitor. The positioning on the right side of the chart shows how the 5-day MA sits right near the breakout level, which creates a powerful support combination.
Consequently, the bulls must control this area to build on last week’s momentum.
To determine whether the bulls or bears gain the upper hand, zero in on the 5-day MA. Before Sep. 20, the S&P 500 dipped below the 5-day MA intraday for three straight days before closing above it. In other words, while false breakdowns occurred during those trading days, the index roared back to deliver bullish closes.
So, while similar ‘fakeouts’ could occur this week, a few more closes above the 5-day MA and the horizontal white line could be signs that a run to 6,000 is building momentum.
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