The S&P 500 is currently testing the upper limit of its base near 4195/4220, and economists at Société Générale believe that the uptrend will likely extend beyond this point. The S&P 500 is one of the most important equity indices in the world, representing the performance of 500 major US-based publicly-traded companies. As such, the index serves as a key benchmark and barometer for the overall health of the US economy and financial markets. In recent months, the index has been trading within a base or consolidation pattern, as investors have been grappling with various factors such as inflation concerns, economic growth prospects, and the trajectory of monetary policy.
Among the technical indicators supporting the bullish outlook for the S&P 500 is the so-called “golden crossover”. This occurs when a shorter-term moving average, in this case, the 50-day moving average (50-DMA), crosses above a longer-term moving average, like the 200-day moving average (200-DMA). Technical analysts consider this to be a bullish signal, as it reflects that the underlying momentum in the index is favoring the upside, and it could potentially lead to an acceleration in the upward trend.
According to Société Générale, the S&P 500 is approaching a critical graphical resistance level in the range of 4195/4220, which coincides with the peaks observed in February and a previous down-gap. If the index is able to break above this resistance, it would confirm the bullish scenario and could pave the way for further gains. The next potential targets for the S&P 500 could be the August 2021 high of 4320, and possibly even higher at 4510.
While the S&P 500 is currently trading close to its all-time highs, it has experienced some turbulence in recent months due to a variety of factors. For instance, the resurgence of COVID-19 cases worldwide has raised questions about the pace of the economic recovery and the trajectory of global growth. Additionally, there have been widespread concerns about rising inflation and the potential need for central banks to tighten monetary policy to keep a lid on price growth. Furthermore, the US Federal Reserve’s recent decision to begin tapering its bond purchases has introduced some uncertainty into the markets.
However, there are several supporting factors that could help to drive the S&P 500 higher. For one, corporate earnings have remained strong, and many companies in the index have been posting better-than-expected results. This has provided a foundation for higher stock prices, as valuations are underpinned by solid earnings growth. Moreover, consumer confidence and spending have also been showing signs of improvement, which could bode well for the performance of companies in the consumer discretionary sector, for example.
In the event that the S&P 500 experiences a short-term pullback, Société Générale’s analysis suggests that there could be an ascending trend line since October at 3930 that could provide support. This means that even if the index faces some downward pressure, it could potentially find a floor in that support level before resuming its upward trajectory.
In conclusion, the S&P 500 is presently testing the upper limits of its base near 4195/4220, and the outlook from Société Générale’s economists is that the index could ultimately extend beyond this resistance level. The golden crossover, as well as other supporting factors such as robust corporate earnings and improving consumer confidence, all point to the potential for the S&P 500 to experience further gains. However, it’s always important to consider the various risks and uncertainties that could impact the index, and investors should be prepared for potential short-term fluctuations in the market.