US stock markets found some relief after testing the lower boundary of the trend channel. The recovery in the bond market, as the 10-year yield approached 5%, is one of the reasons for this jump. After the surge in yields, several Federal Reserve (Fed) members expressed that the Fed may need to do less as financial conditions tighten. However, if yields fall too much in the coming days or if the inflation data comes in hot tomorrow, this relief could be short-lived. Rising oil prices and the escalation of conflict in the Middle East are potential downside risks as the index attempts to change its direction for the short term.
The passing of the 4360 level marked a significant improvement. This level has functioned as both support and resistance multiple times this year. If the index is able to maintain this level after tomorrow’s data, the likelihood of further upside potential will increase. In that scenario, the next targets to watch would be the downtrend from July and the top from early August, at 4450 and 4550, respectively. However, the primary target could become the upper boundary of the trend channel in the medium to long term. The end of the rate-hiking cycle might become the main catalyst for upside potential, while the potential risks of a government shutdown and persistent inflation will be the main downside concerns.
Over the medium term, 4200 will serve as the primary support level. As long as it holds, any downward movements can be viewed as buying opportunities. However, a situation below 4200 presents a different story.
