S&P 500 to see near-term consolidation after hitting record high

CME_MINI_DL:ES1!   S&P 500 E-mini Futures
Our View:
The S&P 500 E-mini Futures hit a new all-time high last Friday, powered by tech shares and AI optimism, as the contract breached the key 4,800 level to confirm a bull market rally from its October 2022 low.

Nevertheless, given recent pushback from Fed officials and a resilient labour market, we think investors may have gotten ahead of themselves in terms of pricing in interest rate cuts.
In our view, US equities appear to be overbought and could see a short-term pullback towards key support levels as markets re-evaluate the interest rate trajectory; although we don’t see a massive drawdown as likely.

We expect to see a near-term consolidation and look to buy on weakness to add exposure to US equities. Eventual rate cuts will be ultimately supportive for US equities.

Looking ahead, with valuations at record highs, earnings are likely to be the primary drivers of upside. This can be seen in how TSMC’s positive outlook was able to offset lingering doubts about Fed rate cuts to push the broader market higher.

Expressing Our View:
We favour the hypothetical trade setup below in order to express our view.

Long S&P 500 E-mini Futures:
We remain constructive on the S&P 500 E-mini. We see any near-term pullbacks as attractive entry points.

Our view is supported by the 14-day RSI approaching oversold levels of 70; and a bearish divergence observed in the MACD indicator.

With a Trend-based Fibonacci Extension drawn from the October 2022 low to the July high on the 4daily chart, we prefer waiting out any short-term correction and taking entry near the 61.8% extension level which coincides with the key 4,800 level.

We set our target level around the 100% extension level at 5,250. Stop loss is set below the 50% extension level at 4,650. This setup delivers a reward: risk ratio of 3x

• Entry Level: 4,800
• Target Level: 5,250
• Stop Loss Level: 4,650

• Profit at Target: 450 x $50
• Loss at Stop: 150 x $50
• Reward: Risk Ratio: 3x


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