The stock market in the US has been surging since it saw a dip in October. In just nine months, the S&P 500 has surged more than 38%, with optimism fueled by various factors, from AI advancements to anticipated rate cuts, supporting the significant returns. Now that the September rate cut is almost a done deal, the question is whether the index will be able to break the 5700 resistance level (see the monthly report for more details).
After the assassination attempt on Trump, his chances of being elected have risen significantly. Now, the markets might begin to focus on Trump’s economic promises and their effect on the markets. While tax cuts are surely positive for the markets, their impact on the already stretched budget might not be pretty. Higher tariffs could lead to the danger of a new trade war, heightened tensions between China and the US, and weaker Chinese growth. On top of that, concerns about the Fed’s independence will be another topic for the markets.
(VIX Index 4H Chart)
There is a saying in the markets: “Buy the rumor and sell the news.” The market was buying the rumor of rate cuts for the last year, and now it might start to sell it while simultaneously buying the rumor of a Trump presidency. This new adjustment might increase market volatility. The VIX index indicates that it has already started to adjust to the new conditions. The contraction might end this week with a breakout. The 13.40 level is one to watch.
(S&P 500 E-Mini Index 4H Chart)
As the VIX index pushes for a breakout, the S&P 500 is testing the 5700 resistance level, which is the 61.8% extension of the October 2023 – April 2024 move. Additionally, the upper level of the recent trend channel is at 5740. This area might provide significant resistance in the short term.
The price is contracting within the uptrend while staying close to the upper line of the channel, creating an upward wedge formation. This could be another signal for a possible correction. The 5630 level is the support to watch for any possible sharp selloff. Despite technical signals for the short term, the general direction is still upward, and dip buyers are probably waiting for another opportunity. Therefore, the potential sharp selloff might stay limited, depending on how much the VIX reacts.
