- The S&P 500 is consolidating gains but faces global investor caution and profit-taking pressures.
- Nvidia's stock fell on weak revenue projections, impacting tech-heavy indices.
- Key support for the S&P 500 is at 5893, with overbought conditions warranting caution.
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After the recent US presidential election, where Trump’s win gave a big boost to US stock markets, the S&P 500 has been consolidating – falling last week and being little-changed so far this week. In other words, it has managed to maintain some of those election-related gains, even though markets outside of the US have struggled.
Investors outside of the US are more cautious due to the potential impact from protective trade measures under Trump and the likelihood of tighter US monetary policy in 2025, a theme also reflected in the bond and FX space with the dollar rallying and Treasurys and euro declining. On top of that, you have raised geopolitical uncertainty given the escalation in the proxy war between Russia and the West, in Ukraine.
On a micro level – although not so micro given the size and impact of the company – Nvidia (NASDAQ:NVDA) saw its shares fall more than 3% in pre-market despite another record quarter, beating earnings and revenue estimates.
Investors were disappointed with the company forecasting the weakest revenue growth in 7 quarters, while concerns were also cited over production levels. It is certainly worth watching NVDA today as it could impact the direction of the tech-heavy indices like the Nasdaq and S&P.
S&P 500 Technical Analysis and Trade Ideas
From a purely technical point of view, it is difficult to say whether the market has created a near-term top, or this is just a pause before we see new all-time highs. That's because the S&P 500 continues to remain in an environment of higher highs and higher lows, and for as long this series remains intact, the bulls will always have the benefit of the doubt. That being said, recent price action is beginning to look a little bit heavy, so some extra caution is warranted.
In the last three or four days, the market has tried to rebound, but it has not found any upside followed through yet, suggesting that perhaps investors are sitting on their hands awaiting some key driver to push the markets further higher from here. However, a quieter macro and earnings calendar means the potential for profit-taking could further weigh on the market and possibly cause a downward shift in the near term.
The key support area that needs to hold on the S&P futures chart is at 5893. This level was previously resistance, marking the high from the last significant downward move that took place towards the end of October, before the market surged through this level on the back of the election outcome on 6th November.
Once resistance, this level has turned into support, and we've seen the market bounce from around this level in the last few days. But the lack of significant further bullish follow-through makes me wonder whether a breakdown could be on the cards now.
If the S&P futures does break this level down, then the next downside target could be at 5805, which was a pivotal area before the election. But if that level also breaks then the next downside target could be the July high of 5721, although if it gets to that level, why stop there? Why can't it move even lower, for then we will have created a lower and not to mention the breakdown of several key support areas in the process? So, the importance of the 5893 level cannot be overstated.
In terms of resistance levels to watch, the first one comes in at 5951, which has held in the last few days. A move above that level could pave the way for 5990, which is the base of the recent breakdown, and then you have the all-time high coming at 6053.
S&P 500 at Long-Term Overbought Levels
Meanwhile, it is worth remembering that the market remains at severely overbought levels on higher time frames, such as the monthly. Indeed, if you look at the monthly RSI, it is sitting at above the 70.0 threshold. Mind you, it did get even more overbought back in 2021 and stayed overbought for several further months before the market tanked in 2022. So just because it's at overbought now, doesn't mean that it's necessarily a sell signal.
However, it does call for some caution, particularly if we now see the breakdown of some short-term support levels now. On the monthly chart, key support comes in at 5720 to 5725 area, which was the high from July and the low from October, making it a pivotal area.
SPY Levels to Watch
Transferring the above-mentioned levels on the SPY chart, you can see those on this daily timeframe below:
The SPY is an exchange-traded fund designed to track the S&P 500 index by holding a portfolio comprising all 500 companies on the index.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.