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  • Weekly Focus: S&P 500 Targets 4300 as Inflation in the U.S. Is Going Down

Weekly Focus: S&P 500 Targets 4300 as Inflation in the U.S. Is Going Down

The S&P 500 broad market index easily crossed the 4020 points landmark last week and hit 4075 points on Friday’s close accommodating itself in an aggressive upside formation with primary targets at 4300-4400 points by the end of this week. This mean 5.5-8.0% up from the current 4090 points.

Such rapid changes could prompt investors to close part of their short positions on the index which were opened at 4285-4290 points. This may sound like a preventive countermeasure as the conditions for a stock market downturn in the United States are still strong. Some drivers, however, are missing and now could be the time when everything starts to come together to complete the puzzle for this downturn. First, the stock market went through a rebound amid positive indications that inflation in the U.S. has finally been brought under control, and then went down again on the notion that something could happen to dash all these hopes.

New August inflation estimates will be released on Tuesday. Consensus suggest that inflation pressure is down to 8.1% year-on-year from the previous 8.5%. Together with last week’s comments by Chicago Federal Reserve (Fed) Bank President Charles Evans that the inflation report may point to how much the Fed could raise its interest rates this month, this may push the market up amid expectations that the Fed could ease its interest rate hike trajectory. This may indeed become a positive driver for the market in case inflation subsides. Thus, a partial closing of short positions on the S&P 500 index, or even complete closure if the market bounces back  stronger, can be justified. 

The oil market is in no rush to move alongside an aggressive downside formation with the primary target at $75-85 per barrel of the Brent crude benchmark. Moreover, prices are declining ahead of  schedule and may perform some upside spikes to $97-100 per barrel amid good news from the stock market. But there appears to be a minor doubt as to whether Brent crude prices can hit $50-60 per barrel by November. So, no one should be captivated by such spikes.

Gold prices have recovered slightly to $1726 per troy ounce amid a weakening U.S. Dollar. This does not change the overall downside picture with gold prices expected to dive towards $1350-1450 per ounce by the end of October. Some short positions of 25% of the targeted amount were opened at $1730. Further movements would call for further stock market developments. It is likely that gold will offer more attractive entry points to go short.

EURUSD is aggressively going up towards 1.02500-1.03500 after entering a buy zone at 1.00500-1.00800 at the end of last week. Considering current levels at 1.01300, the pair is gaining around 1500 points of profit. However, the pair is rising very rapidly, and it may be worth considering taking profits on the trades opened last week.

GBPUSD also provided a nice opportunity for investors last week as it corrected to a 1.15300-1.15800 buy zone. The current 1.16600 level  translates into a good 1300 points profit. The pair has a further upside potential as it is moving towards 1.18000-1.18500. So, a half of the long trades opened last week could be closed in line with the conservative strategy while the rest should be left open in case the pair continues a strong rise. Stop loss orders should be moved above the opening price to secure minor profit on such trades.