US 500 – Signs of Fatigue After a Strong Recovery?It’s been an edgy start to December for the US 500 index, a month which is historically one of the strongest. Part of the reason could be that the last 7 trading days of November saw a 5.3% rally from lows of 6508 (Nov 21st) to 6852 (Nov 28th) as markets reacted positively to more dovish commentary from Federal Reserve policymakers, which revived the possibility of a final Fed rate cut at their last meeting of the year on December 10th.
Now Fed speakers are in the blackout period before that meeting where they are banned from publicly discussing current policy and it suddenly feels like a long time to wait to hear the outcome of their deliberations, especially with the US 500 sitting a mere 2% from its record highs of 6925 set on October 30th.
Traders also must contend with a busy data schedule across this week, and it didn’t get off to the best start with yesterday’s US ISM Manufacturing PMI survey showing activity falling further into contraction territory (below 50), with sagging order books and higher prices being paid.
However, while manufacturing activity is important to the US economy, by far the biggest driver is services and the ISM Services PMI survey is due for release tomorrow at 1500 GMT. Last month’s reading sat comfortably in expansion territory (above 50) and US 500 traders will be looking to judge this new release against the previous month. Any disappointment could weigh on sentiment and vice versa.
The available updates on the US labour market could also be important as they could impact the Fed rate decision next week. The ADP monthly private sector payrolls is released tomorrow at 1315 GMT, with the Challenger job cuts due Thursday at 1230 GMT and weekly jobless claims due at 1330 GMT. The shock weaker Challenger job cuts reading last month initiated some extra US 500 volatility and it will be interesting to see if this happens again.
The technical backdrop is also potentially crucial going into such a critical period and the current assessment can be seen below.
Technical Update: Signs of Fatigue After Strong Recovery?
The US 500 index has staged an impressive recovery of more than 5.3% since the November 21st low, as recent price weakness once again found dip buyers. This pattern has been a consistent feature in US equities for some time. However, as the chart below highlights, the latest upside move in price has yet to achieve a close above the potential resistance defined by the October and November highs.
This may be seen by some as the latest buying failing to breach a previous price peak, thereby disrupting the pattern of higher highs and higher lows. In other words, a possible sign of slowing upside price momentum.
Of course, this does not necessarily signal the end of recent price strength. However, it may remain prudent to monitor both support and resistance levels closely, as doing so may help clarify whether the latest activity reflects a slowing of upside momentum that could lead to renewed weakness, or simply a pause in the advance before fresh price strength emerges.
Potential Resistance Levels:
As strong as the rally from the November 21st low appears, it currently remains capped below 6880, the November 12th session high. As the chart below highlights, this 6880 level represents the last recovery high and failure point, where selling pressure was sufficient to reverse the price advance back to the downside. Traders are therefore possibly viewing 6880 as the first potential resistance level to the current rally.
While not a guarantee of continued upside, closing breaks above 6880 may be interpreted as a sign of price strength resuming. If this proves to be the case, closes above 6880 could pave the way for attempts to challenge 6925, the October 30th session high, with possibilities for further gains should that level also give way on a closing basis.
Potential Support Levels:
If resistance at 6680 continues to hold, traders may begin to suspect that upside price momentum is slowing, which in turn could see renewed selling pressure. At the same time, attention may shift to 6751 as the first support. This level is equal to the Bollinger mid‑average.
While much will depend on future market sentiment and price trends, closing breaks below 6751 could open scope for further declines. Such moves, if seen, may lead to tests of 6722, the 38.2% Fibonacci retracement of the latest advance, and potentially even extend toward 6681, the deeper 50% retracement.
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