US 500: Facing a Stern Test in the Week Ahead

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After closing out the best month of the year so far with a 5.6% gain in November, the US 500 index faces a sterner test in the week ahead. There are several key pieces of tier 1 US economic data and a moderated discussion, which includes the Chairman of the Federal Reserve, Jerome Powell, to consider.



Backdrop for the Week Ahead:



In a sleepy end to last week, the US 500 finished at a new all time closing high of 6038, a move supported by news of Donald Trump's nomination of Wall Street insider Scott Bessent as US Treasury Secretary. This sent US bond yields lower and saw trader expectations increase slightly for another 25bps (0.25%) Federal Reserve interest rate cut at their final meeting of the year on December 18th.



Moving Forward:



Upcoming events in the week ahead may assist the Fed in deciding whether they have room to cut interest rates one more time in 2024, which could help support a Santa rally for the US 500 index into the end of the year.



The ISM Manufacturing PMI is released on Monday at 1500 GMT and the ISM Services PMI is released on Wednesday at 1500 GMT. Service activity has been driving growth in the US economy throughout 2024, so that reading may be more important for traders to consider, depending on whether it continues its recent trend of outperformance.



Then on Thursday evening, Fed Chairman Powell participates in a moderated discussion at 1845 GMT. This may be the final time we get to hear from him before the blackout period for Fed policymakers starts ahead of their rate meeting on December 18th. Any comments he makes on inflation, the economy or the pace of interest rate cuts are likely to impact the US 500.



Finally on Friday, it’s the big event of the week, with the Non-farm Payrolls update for November released at 1330 GMT. The path of the unemployment rate, currently 4.1%, may be an important factor in determining the Fed’s next move, and with it, the direction of the US 500 into the weekend.



Technical Update: Can the Outperformance Continue?







A past failure high is often viewed as a resistance level. When that resistance is marked by the all-time high of an asset, it can take on even more significance.



Are buyers happy to pay the highest price ever and continue to sponsor price strength, or does it again attract sellers, wanting to close longs or even short an asset at historical upside extremes?



Of course, successful closing breaks above a previous all-time high may potentially lead to a more extended rise, depending on developing market conditions. Importantly, last week's move higher in the US 500 ensured a successful closing break above the previous 6030 all-time high posted on November 11th were seen.



While much depends on unknown futures market trends, the question now is, does this suggest there is potential for a continuation of the latest price strength, and if this is the case, where could that resistance be found?



Possible Next US 500 Resistance Levels:



With any asset making new all-time highs, it is effectively in uncharted territory, and it can be hard to gauge where the next resistance points may be. However, within technical analysis, we can use Fibonacci extensions, to highlight potential higher resistance points.



Using the same percentages as Fibonacci retracements (38.2%, and 61.8%) the extent of a previous correction is taken, with 38.2% and 61.8% of that decline projected higher, from the latest peak.



Within the US 500, using the November 11th to November 19th decline (6030 to 5836) and calculating the above percentages, we have found two possible levels to focus on, if the latest break higher does indeed see further strength.



As the chart above shows, the 38.2% extension stands at 6106 and the 61.8% point at 6152, which may mark resistance, if the current strength extends into new higher ground.



Of course, just because Fibonacci extensions have been successful in suggesting higher resistance points in the past, doesn’t guarantee they will do the same this time. However, if these extensions are approached, defense can be watched.



And Possible Supports?







If the latest break to a new all-time high in the US 500 fails to attract fresh buyers and extend current strength, what levels should be watched to the downside as possible supports?



As proved to be the case earlier in November, the rising Bollinger mid-average currently standing at 5950, marks possible support, and closing breaks below this level could lead to a more extended fall in price. If that were the case, the focus may then shift to 5912, which is equal to 38.2% of the November advance.



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