- US index futures traded mixed, with dip-buying keeping markets on an upward trend despite a lack of major catalysts.
- Tariff threats and geopolitical tensions weighed on sentiment, but markets remained resilient.
- Next week’s Core PCE Price Index release will be crucial for gauging inflation trends and Fed policy direction.
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US index futures traded mixed, retaining much of the small gains made in the previous session by the large-cap indices. European markets bounced back after yesterday’s sizeable drop that was driven by Trump’s latest tariff threat and his apparent retreat from supporting Ukraine and its European allies.
With a lack of major fundamental catalysts, markets are still finding buyers on the dips and continue to grind higher. Soon, a correction may be needed to make US stocks look appealing again from a value point of view. For now, though, we haven’t seen such a sign, but is always best to be prepared.
Before we discuss the macro influences impacting the markets, let’s have a look at the charts first.
S&P 500 Technical Analysis and Trade Ideas
The S&P 500 is continuing to print bullish price action, as you can see by the price action on this daily futures chart of the index. Indeed, the higher highs, rising moving averages, and the fact that we are repeatedly hitting record highs and with minimal pullbacks are all signs of a strong, healthy trend.
That is not to say the trend will continue to remain bullish. But until we see a clear reversal pattern – such as a false breakout, for example – dip-buying should remain the dominant theme.
The key support area to watch in the event of a short-term pullback is around 6098, marking the high of the hammer candle formed last Wednesday. Here, the 21-day exponential moving average also comes into play. Below the 21-day EMA lies the short-term bullish trend line, derived from connecting the recent lows. If we do see a drop to around these levels, then we could well see dip-buyers step in once again to defend the rally.
However, even if the index breaks the most recent lows near 6020, then that could put the bulls in a spot of bother. At that point, we might see the markets turn a bit more volatile as we will have created some bearish price action.
Should this scenario play out, then we could see some follow-up technical selling towards the next support around 5918, or slightly lower still where the long-term trend line converges.
On the upside, there are no obvious resistance levels since we are trading near all-time highs. The December high of 6152 has been tested on numerous occasions now, and a bullish breakout looks to be on the cards. If this happens today, the next key question will be whether the breakout will hold, or whether we will go back below this level on a closing basis (which would be a bearish scenario).
A clean break above 6152 could then pave the way for a run towards the Fibonacci extension levels shown on the chart, with the 127.2% extension of the pullback from the December peak coming in at 6246.
Focus Remains Firmly On Trump
Following the big slide in European shares yesterday, markets have been a lot more stable so far in the day, helping to keep US index futures supported. Yesterday, US President Donald Trump raised the prospect of tariffs of up to 25% on automobile, semiconductor, and pharmaceutical imports.
On top of this, Trump’s apparent retreat from supporting Ukraine and its European allies also hurt sentiment. These geopolitical concerns propelled gold prices to a fresh record, with the metal soaring past the $2,950 hurdle this morning.
But amid all the headlines, US markets remain fairly resilient. On the one hand, Trump’s latest remarks have added to a jittery market atmosphere this week, with tentative optimism over a possible resolution to the war in Ukraine dampened by the absence of Ukrainian and European officials from US-Russia discussions.
On the other, Trump's hinting at the possibility of striking a new trade agreement with China has offered a glimmer of hope on that front.
Next Week: Core PCE Price Index
Meanwhile, central banks remain cautious, as inflation risks could limit the scope for interest rate cuts – a message that was echoed by the RBA earlier this week. The Federal Reserve’s latest policy meeting minutes that were released yesterday confirmed that, for now, the policy is set to remain steady.
There is not much in the way of major economic news to change that view, so all the focus will remain on Trump and his tariffs threats.
Next week, the focus will turn to the Fed’s preferred inflation gauge: the Core PCE Price Index, due for release on Friday 28th February. The latest CPI and PPI numbers that were released last week both proved to be hotter than expected, although the US Dollar Index failed to react positively to the hotter inflation data as concerns over tariffs eased.
It was also the components of the PPI that feed into the Core PCE index, including healthcare and insurance costs, along with a sharp drop in airline fares, that eased inflation concerns.
Those figures suggest that Core PCE is likely to ease to 2.6%, down from the previous 2.8% estimate. Meanwhile, we will also get the preliminary US Q4 GDP released at the same time (second estimate). Until then, all other macro pointers that will come out in the interim are likely to have only a limited impact on the markets.
Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.