5/27: Weekend Recap, Outlook, and Trading Plan
Recap
After shaving 100 points off the weekly low, we are currently monitoring several structures. A "triangles within triangles" pattern is emerging, with a larger triangle appearing (shown in purple). Although this technically broke out yesterday, factors like stretched-out RSI and the upcoming long weekend make us suspect ES still has work to do.
After witnessing a significant and straightforward move, it is now time to react and monitor further price movement. The plan and lean will be detailed at the very end.
Stock Market Performance
The U.S. stock market saw modest gains in April. The S&P 500 rose 1.4% during this period, thanks in part to signs that inflation is cooling off, indicating that the current interest rate hike cycle might be ending. Investors are optimistic that the market can continue its bullish momentum into May, despite historically being one of the worst months for the S&P 500.
Recession Risks
There is a rising risk of a recession, due in part to slowing economic growth. The U.S. GDP grew by just 1.1% in the first quarter, well below the expected 2% growth. This has led some investors and experts to believe that a recession in 2023 is unavoidable.
Inflation and Federal Reserve Actions
The inflation rate, as measured by the Consumer Price Index, was 5% year-over-year in March, down from peak levels of 9.1% in June 2022 but still above the Federal Reserve's 2% long-term target. The Federal Reserve has been hiking interest rates to combat inflation. The market is currently pricing in an 85% chance that the Fed will raise rates in May, with a potential rate hike in June still on the table. The Fed's actions in the coming months will be crucial in determining whether the economy can avoid a recession.
Economic Indicators
The U.S. housing market has softened, and manufacturing activity has dropped. The U.S. Treasury yield curve has been inverted since mid-2022, which is often a sign of an impending recession. However, the labor market remains resilient, with the economy adding 253,000 jobs in April, and the unemployment rate remaining low at 3.4%.
Support Levels
Support is currently in the mid-4140s.
4213, 4205 (major), 4187-94 (major zone), 4176, 4165 (major), 4155, 4143 (major), 4137, 4123 (major), 4109 (major), 4099, 4081 (major), and 4072 (major).
Resistance Levels
4221 (major), 4228, 4235, 4242 (major), 4254, 4260 (major), 4267, 4274 (major), 4283, 4295, 4306, and 4312 (major).
Trading Plan
The presented levels are valid for both Tuesday and Monday's short futures trading day but may be slightly less accurate. We will be taking it easy on Monday and Tuesday while waiting for price discovery. The general consensus is that we can hold 4220 at this point, possibly backtest 4205 and 4193, then defend and establish a base before another rally. If 4193 fails, we will see a further dip.
Wrap Up
In this newsletter, we discussed the possibility of finally breaking through the 4200s area, our method for trailing stops, and our trade plan for the upcoming week. Our general sentiment is that we can now hold 4220, possibly backtest 4205 and 4193, then defend and create a base before another rally. A further dip is expected if 4193 fails.
After shaving 100 points off the weekly low, we are currently monitoring several structures. A "triangles within triangles" pattern is emerging, with a larger triangle appearing (shown in purple). Although this technically broke out yesterday, factors like stretched-out RSI and the upcoming long weekend make us suspect ES still has work to do.
After witnessing a significant and straightforward move, it is now time to react and monitor further price movement. The plan and lean will be detailed at the very end.
Stock Market Performance
The U.S. stock market saw modest gains in April. The S&P 500 rose 1.4% during this period, thanks in part to signs that inflation is cooling off, indicating that the current interest rate hike cycle might be ending. Investors are optimistic that the market can continue its bullish momentum into May, despite historically being one of the worst months for the S&P 500.
Recession Risks
There is a rising risk of a recession, due in part to slowing economic growth. The U.S. GDP grew by just 1.1% in the first quarter, well below the expected 2% growth. This has led some investors and experts to believe that a recession in 2023 is unavoidable.
Inflation and Federal Reserve Actions
The inflation rate, as measured by the Consumer Price Index, was 5% year-over-year in March, down from peak levels of 9.1% in June 2022 but still above the Federal Reserve's 2% long-term target. The Federal Reserve has been hiking interest rates to combat inflation. The market is currently pricing in an 85% chance that the Fed will raise rates in May, with a potential rate hike in June still on the table. The Fed's actions in the coming months will be crucial in determining whether the economy can avoid a recession.
Economic Indicators
The U.S. housing market has softened, and manufacturing activity has dropped. The U.S. Treasury yield curve has been inverted since mid-2022, which is often a sign of an impending recession. However, the labor market remains resilient, with the economy adding 253,000 jobs in April, and the unemployment rate remaining low at 3.4%.
Support Levels
Support is currently in the mid-4140s.
4213, 4205 (major), 4187-94 (major zone), 4176, 4165 (major), 4155, 4143 (major), 4137, 4123 (major), 4109 (major), 4099, 4081 (major), and 4072 (major).
Resistance Levels
4221 (major), 4228, 4235, 4242 (major), 4254, 4260 (major), 4267, 4274 (major), 4283, 4295, 4306, and 4312 (major).
Trading Plan
The presented levels are valid for both Tuesday and Monday's short futures trading day but may be slightly less accurate. We will be taking it easy on Monday and Tuesday while waiting for price discovery. The general consensus is that we can hold 4220 at this point, possibly backtest 4205 and 4193, then defend and establish a base before another rally. If 4193 fails, we will see a further dip.
Wrap Up
In this newsletter, we discussed the possibility of finally breaking through the 4200s area, our method for trailing stops, and our trade plan for the upcoming week. Our general sentiment is that we can now hold 4220, possibly backtest 4205 and 4193, then defend and create a base before another rally. A further dip is expected if 4193 fails.
