Weekly Focus: Is S&P 500 Climbing Too High?

Has the rise of the S&P broad market index been too high in recent days? Such a question is in the priority list for most strategists and portfolio managers as the corporate reporting season has just started and only 8% of the reporting companies from the S&P 500 list presented their Q3 2021 financial results. But the S&P 500 index has already risen close to all time-high, just 1.5% below record 4550 points.

Certainly, we can see that 80% of these companies that have filed their reports have beaten consensus forecasts. This is likely a standard practice of underreporting which enables corporates to present higher than expected results in order to surprise investors. So, this factor could hardly contribute that much to the S&P 500 growth. We may turn to the success story of U.S. President Joe Biden’s infrastructure bill of $3.5 trillion that is moving through legal procedures in Congress, as Democrats majority leader in the Senate, Chuck Schumer, said. However, most of the S&P 500 rise was seen on Thursday and Friday last week, while this week when Mr. Schumer was making his statements the index gained just 0.5%.

High-tech sector stocks were surging with the GAANG group (Facebook, Apple, Amazon, Netflix and Google) pushing the NASDAQ 100 by 1.0% on Monday. But there are no evident drivers for these stocks to outperform the market. Even the yields of 10-year U.S. Treasuries are close to their highs at 1.58% with a possible upside rally when the massive $3.5 trillion infrastructure bill is approved.

So, we may consider the current rally as a pure technical one. However, technical signals suggest that the rally is a response to the slowing down of the global economy and pending corporate earnings reports.

It seems like the S&P 500 index tried to climb as much as it could ahead of a possible reversal. The pivot point is at 4520-4530 points. It would be hard for  the S&P 500 index to climb above this limit, so it is likely a turning point for the current upside movement.

The crude market is trapped by the OPEC+ decisions and energy shortage from one side and rising inflation fears from the other. In this situation traders may use the area of $82.0-82.5 per barrel of Brent crude to open buy positions and in case of a spike to $86.5-87.50 per barrel use opportunities to sell with the target at $84 per barrel.

Gold prices are moving inside a wide trading range of $1750-1800 per ounce without any clear reasons. Neither interest rates nor U.S. Dollar movements seem to have determining influence on the bullion prices.

The Forex market, instead, is behaving in a very interesting way as the Greenback seems to be losing steam. The EURUSD is testing the 1.16500 level and in case of a breakthrough it may activate an upside scenario of a rise to 1.17400 and 1.18100. Alternatively, if the pair remains under 1.16500 we may expect a decline to 1.15500.

Amid hawkish rhetoric from the Bank of England, GBPUSD reached the important resistance level at 1.38000 that seems to be very hard to break  this week. We may expect a rebound to 1.36500-1.37000.