It’s increasingly evident that the market is taking the weaker labour market data as good news for inflation and the soft-landing scenario. In fact, last week we got many big misses heading into the NFP report, but the US Jobless Claims showed that the labour market is still fine and the NFP beat expectations. We have also got a jump in the unemployment rate, but it was accompanied by a rise in the participation rate and the average hourly earnings surprised to the downside, which is another good news for inflation. The market doesn’t expect the Fed to hike anymore, so the next stop might be the rate cuts. Historically though, the market falls when the Fed starts to cut rates because those generally come in response to a recession.
S&P 500 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the S&P 500 bounced near the key 4324 support and rallied all the way back above the previous support turned resistance at 4494. The bias has turned more bullish as the moving averages have crossed to the upside and the price made a new higher high. The buyers will now have more conviction to look for a continuation of the trend and target the previous high at 4628.
S&P 500 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a good support zone around the 4494 level where we can also find the confluence with the 38.2% Fibonacci retracement level. This is where the buyers should step in with a defined risk below the support to target the 4628 high. The sellers, on the other hand, will want to see the price breaking lower before piling in and extend the fall into the lows.
S&P 500 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a divergence with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we should see a pullback into the 4494 support where the buyers will be waiting for another rally. If the price continues lower though, it will confirm the reversal and give the sellers more conviction to start targeting new lows.
Upcoming Events
Today is the US Labor Day so the markets will be closed. This week is pretty empty on the data front with just the US ISM Services PMI scheduled for Wednesday and the US Jobless Claims on Thursday. The market has shown strong resilience to weaker data in the past weeks and it’s hard to tell how much bad the data needs to be to bring it down. One thing that held pretty well is the US Jobless Claims, so much worse than expected readings might trigger a selloff.
