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S&P 500 and Nasdaq 100 Inch Higher at Start of Big Week

By:Christopher Vecchio - CFA

Market update: S&P 500 up 2.29% month-to-date

  • U.S. stock markets are working on their third straight week of gains.
  • The macroeconomic calendar and earnings calendar are both crowded in the coming days.
  • The S&P 500 (/ESH4) is on the verge of another fresh all-time high close.

/ES, /NQ, /RTY, /YM
Week-to-date price percent change chart for /ES, /NQ, /RTY, /YM

What may ultimately be a very consequential week is off to a modest start today, with all four U.S. equity indexes trading higher as bond yields come down across the curve.

The calendar may be light today, but it picks up significantly over the coming sessions on the macro front. On Wednesday, the Treasury Department is scheduled to release its quarterly refunding announcement (QRA), and the Federal Open Market Committee (FOMC) is slated to hold its January meeting. Friday will bring the January U.S. jobs report. Earnings reports are due tomorrow from Microsoft (MSFT), Advanced Micro Devices (AMD) and Alphabet (GOOGL), while Apple (AAPL), Amazon (AMZN),and Meta Platforms (META) report on Thursday.

As an appetizer, the Treasury’s borrowing estimate for the January to March period came in at $760 billion from $816 billion last quarter, helping spark a continuation higher in stocks and bonds.

The coming few days could ultimately determine whether stocks are able to finish the month in positive territory. At the time of this writing, the S&P 500 (/ESH4) was up 2.29% for the month putting “the January effect” in play. Since 1950, when January has produced a positive return, the rest of the year has produced an average gain of 12% in over 84% of occurrences.

Technically, the table is set for U.S. equity indexes to trade higher in the short-term. But will the fundamental risks evolve in the coming days and undercut current price action? Until bears take control, it remains the case that “markets at fresh all-time closing highs demand respect.”

/ES S&P 500 price technical analysis: daily chart (May 2023 to January 2024)

/ES S&P 500 price

The S&P 500 (/ESH4) is higher on Monday, touching a fresh record high and breaking the streak in recent days of indecisive price action (dojis and inside days). As noted last week, it appears that “an inverse head and shoulders pattern … does signal continuation to the upside in the near-term; the measured move calls for a gain into 4981 before exhaustion.” 4981 has not yet been reached and remains the upside target.

Bullish momentum is well-moored in the near-term. /ESH4 is above its daily 5-, 13- and 21-day exponential moving average (EMA) envelope, which is in bullish sequential order. Slow stochastics are trending higher into overbought territory, while moving average convergence divergence (MACD) is trending higher while above its signal line. It likewise remains the case that “with volatility declining, traders may prefer long at-the-money (ATM) call spreads as opposed to short out-of-the-money (OTM) put spreads as a way to express a bullish point of view.”

/NQ Nasdaq 100 price technical analysis: daily chart (June 2023 to January 2024)

Nasdaq 100

The Nasdaq 100 (/NQH4) may no longer be setting the pace higher (it’s a few days removed from a new all-time high whereas /ESH4 is already there), but it retains a significantly bullish technical structure. /NQH4 is also above its daily 5-, 13- and 21-EMA envelope, which is in bullish sequential order. Slow stochastics are holding in overbought territory, while MACD is trending higher while above its signal line. Like /ESH4, it remains the case that “with volatility declining, traders may prefer long ATM call spreads as opposed to short OTM put spreads as a way to express a bullish point of view in /NQH4.”

/RTY Russell 2000 price technical analysis: daily chart (July 2023 to January 2024)

Russell 2000

Last week it was noted that “the rally since has constituted a solid defense of the uptrend. Furthermore, the downtrend from the late December and early January swing highs has been broken. Momentum is slowly turning the corner, but traders now have a clearly defined level of support from last week to trade around.” The Russell 2000 (/RTYH4) continues to respect the uptrend after rebounding from 1925 and is looking to make a decisive move above 2010 for the first time since early January. With an IVR north of 40, bulls may look to capitalize on the current environment with either long ATM call spreads or short OTM put spreads.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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