US Market Technicals Ahead (7 June – 11 June 2021)

Investors will keep a close eye on Thursday’s U.S. consumer price data amid concerns that rising inflation could prompt the Federal Reserve to begin pulling back on stimulus. The consumer price report for May will probably show the inflation rate rising to 4.6 percent, the highest since September 2008 and well above the Federal Reserve’s target of about 2 percent.

Meme stocks look likely to continue to grip investors’ attention after a wild ride last week. Markets will also be monitoring the progress of President Joe Biden’s proposed $1.7 trillion infrastructure plan, which has already boosted the industrials and materials sectors this year, leaving many industrials and materials stocks vulnerable to a selloff if a large spending bill in Washington fails to materialize.

Elsewhere, the European Central Bank (ECB) is to meet on Thursday and may discuss tapering stimulus.

Here’s what you need to know to start your week.

S&P500 (US Market)
The benchmark index ( $SPX ) kicked off the 2nd half of 2021 on a positive note, gaining +0.55% (+23 points) during the week.

$SPX remains less than a percentage point away from recapturing its all time high level of 4,245 level. The past two weeks of low market volatility have seen $SPX trading in a range less than 36 points, the lowest since April 2021.

In the meanwhile, $SPX continues to reflect a minor bearish divergence within its falling price volatility along with daily trading volume on its up-days as highlighted since last week. The immediate support to watch for $SPX is now at 4,150, a breakdown to the lowest price level traded over the past two weeks.

Inflation threat

All eyes will be on the latest CPI data on Thursday, after a much stronger than expected inflation number sparked a selloff last month, as many worried rising price pressures could force the Fed to begin unwinding stimulus soon.

Friday’s jobs report indicated that while jobs growth picked up from the previous month wage growth also accelerated. This could bolster the argument that higher inflation may persist rather than being transitory, as is currently viewed by the Fed.

The inflation reading is one of the last major pieces of economic data ahead of the next Fed meeting on June 15-16 and Fed officials will be in their traditional blackout period during the coming week ahead of that meeting.

The economic calendar also features Thursday’s figures on initial jobless claims, which fell below 400,000 in last week’s release for the first time since the start of the pandemic.

Meme stock frenzy

The wild ride for meme stocks looks set to continue, after AMC ($AMC) shares ended last week with gains of more than 80% despite falling more than 6% on Friday.

AMC has been at the center of a fresh wave of buying by retail investors who hyped the stock in forums such as Reddit’s WallStreetBets, breathing new life into a phenomenon that began with January’s more than 1,600% gain in GameStop ($GME).

AMC , which was on the brink of bankruptcy not long ago, on Thursday completed its second share offering in three days, cashing in on a nearly 400% surge in its share price since mid-May.

But most analysts say that the scale of the rally is out of line with AMC’s fundamentals and high valuations on the meme stock names are unlikely to last.

There are no actively managed stock funds among AMC’S 20 largest shareholders, according to Refinitiv data, leaving open the risk that a shift in retail investor opinion could quickly sink its shares.

Infrastructure deal

Market participants will be closely following negotiations between Democrats and Republicans in Washington over President Joe Biden’s proposed $1.7 trillion infrastructure deal.

Transportation Secretary Pete Buttigieg had said the White House sees Monday – when Congress returns from a one-week break – as a critical date to see progress in talks.

Expectations of government spending on infrastructure have already boosted value stocks this year, particularly the industrials and materials sectors, which have both gained around 20% since the start of the year, against a 12.5% gain for the S&P 500 .

Those large gains may leave many industrials and materials stocks vulnerable to a selloff if a large spending bill in Washington fails to materialize.

ECB dilemma

The ECB meets on Thursday and will release its updated growth forecasts for 2021 and 2022.

Policymakers will debate whether to prolong their support for the euro zone recovery through emergency stimulus, a decision that will hinge on how strong they believe the region’s economic recovery is.

Recent dovish comments by several ECB policymakers have highlighted the risks of premature tightening. Any indication from ECB head Christine Lagarde that the debate on tapering is getting underway could push euro zone bond yields still higher and undermine the economic recovery in the bloc.