Thursday's Market Minute: S&P Futures Blaze Through 4,500 As Earnings Loom

S&P 500 futures this morning saw a relatively muted reaction to cooler-than-expected Producer Price Index data as another earnings season is about to begin tomorrow with the big banks. In the broader picture, it’s been a good time to be a bull; the /ES has been in an upward channel and is enjoying a nearly +18% rally since logging some relative lows on March 13. Yesterday, the contract blazed above the 4,500 level after the Consumer Price Index data propelled it upward.

 The technical picture looks more positive than negative. The Volume Profile study shows price is moving above the nodes (areas of heavy trading) that formed near 4,420 and 4,480, which suggests price acceptance. Price is trading above many major moving averages, which are also trending upward. Additionally, the contract continues to advance above the +1 Standard Deviation Channel, which comes in near 4,446. This study suggests price is at a relatively extreme level based on the yearly Linear Regression Line (a line of best fit based on closing prices) and could be in store for further upward movement. 

Another notable development is that the Relative Strength Index (a measurement of the speed and momentum of price change) was showing some bearish divergence during the last peak on July 3, meaning that price was making new closing highs over the June 16 highs yet the RSI was trending downward. But today, the RSI is pushing above the downward trendline forming from the two highs, and also is on the cusp of breaking into the overbought area, which typically is regarded as a sign of strength. 

Potential resistance could be found near the top of the upward channel that began on March 13, which comes in near 4,570. Keep an eye on the +2 Standard Deviation Channel as another potential point of resistance if price keeps rising. To the downside, look to the area near 4,490 for support, as prices topped out near this area twice before breaking above 4,500. Also, watch for shorter-term moving averages, such as the 21-day Exponential Moving Average, to change their slope from upward to downward for clues about a potential breakdown in trend.

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