Making Sense of Labor Data, Inflation and the S&P 500

Making Sense of Labor Data, Inflation and the S&P 500
Mary Wild
Mary Wild
Published on: 04.09.2023 12:32 (UTC)
Post reading time: 5.33 min

It`s pretty interesting how the market reacts to the recent labor market data. It seems like weaker job numbers are actually seen as a good thing for inflation and the idea of a soft landing for the economy. Last week, we had some disappointing data leading up to the Non-Farm Payrolls (NFP) report, but surprisingly, the NFP report beat expectations.

So, even though the unemployment rate went up a bit, it was kind of balanced out by more people entering or reentering the workforce, which is usually a positive sign. Plus, average hourly earnings didn`t rise as much as expected, which is seen as a win for keeping inflation in check.

The market seems to be in a mode where it`s not expecting the Federal Reserve (the Fed) to raise interest rates anymore. Instead, there`s speculation that the Fed might actually cut rates down the road. That`s where it gets interesting historically – when the Fed starts cutting rates, it`s often a response to economic troubles, and that tends to spook the market.

So, in a nutshell, the market is currently happy about the weak labor data because it thinks it`s good for inflation and a soft landing. But we should keep an eye on things, because historically, rate cuts from the Fed have often signaled rough economic times ahead, and that can lead to market turbulence.

Let’s take a look at what’s happening with the S&P 500 on the Daily, 4 Hour and 1 Hour price charts

Support and Resistance Levels: On the daily chart, the S&P 500 recently experienced a bounce near a critical support level at 4324. This indicates that there was significant buying interest at that level. Additionally, it managed to climb back above a previous support level that had turned into resistance at 4494. This breach of resistance is a positive signal.

Bias Shift to Bullish: The analysis suggests that the bias has shifted to a more bullish outlook. This shift is supported by two key factors:

Moving Averages: The moving averages have crossed to the upside. This is often considered a bullish signal in technical analysis, as it indicates that the average price over a specific period is trending higher.

Higher High: The price has made a new higher high, which means that the recent upward momentum has led to a higher peak than the previous one. This is typically seen as a sign of strength in an uptrend.

Conviction of Buyers: With the breach of the resistance-turned-support level and the moving averages crossing positively, buyers may have gained more confidence in the market`s upward potential.

Price Target: The analysis mentions a potential price target of the previous high at 4628. This suggests that traders and investors may be looking for the market to continue its upward trend and aim for this level.

In summary, the analysis of the S&P 500 on the daily chart suggests a shift in bias towards a more bullish outlook. Key technical indicators, including the breach of a resistance-turned-support level, moving average crossover, and the formation of a higher high, support this shift. The mentioned price target at 4628 indicates that market participants are eyeing further upward movement in the index.

4 Hour chart 

Support Zone at 4494: The 4-hour chart highlights a significant support zone around the 4494 level. This level appears to be a critical area for traders, as it has previously acted as both support and resistance. It`s also mentioned that this level coincides with the 38.2% Fibonacci retracement level. This confluence makes it an even stronger support area.

Buyer`s Strategy: buyers may find this support zone an attractive entry point. The idea is for buyers to step in at or near 4494 with a well-defined risk management strategy. This typically means placing stop-loss orders below the support level to limit potential losses. The target for buyers is set at the 4628 high, indicating an expectation of an upward price movement.

Seller`s Strategy: On the other side, sellers would look for confirmation of a breakdown below the support level before entering the market. In other words, they would want to see the price convincingly break lower before considering short positions. The goal for sellers would be to push the price down further, possibly targeting lower lows.

In summary, the 4-hour chart analysis suggests that the 4494 level is a crucial support zone with added strength due to its alignment with the 38.2% Fibonacci retracement level. Buyers may look to enter the market here with a defined risk, aiming for a target at the 4628 high. Sellers, on the other hand, would seek confirmation of a breakdown below this support before considering bearish positions. Risk management and clear entry and exit strategies are essential for both buyers and sellers in this scenario. As always, it`s crucial to consider other factors and market conditions before making trading decisions.

1 Hour Chart

MACD Divergence: The 1-hour chart reveals a divergence with the MACD (Moving Average Convergence Divergence) indicator. Divergence occurs when the price movement and the MACD indicator move in opposite directions. In this case, there is likely a bearish divergence, suggesting weakening upward momentum.

Potential Sign of Weakening Momentum: Divergences in the MACD are often viewed as signs of weakening momentum in the prevailing trend. This can serve as a warning that a pullback or reversal might be on the horizon.

Anticipated Pullback: Based on the analysis, there`s an expectation of a pullback in the price action. If the MACD divergence is indeed signaling weakening momentum, traders may anticipate a retracement in price.

Support at 4494: The projected pullback is expected to find support around the 4494 level, which aligns with the previous support zone mentioned earlier. This is where buyers might be waiting to re-enter the market and potentially drive prices higher again.

Reversal Confirmation: The analysis also mentions that if the price continues lower and breaks through the 4494 support, it could confirm a reversal. This would give sellers more confidence to target new lows, suggesting a potential shift in the overall trend.

In summary, the 1-hour chart analysis highlights a bearish MACD divergence, indicating a potential weakening of the current upward momentum. This suggests the possibility of a pullback into the 4494 support level, where buyers might look for opportunities to re-enter long positions. However, a breakdown below this support level could signal a reversal, leading to more bearish sentiment and potential targeting of new lows. As always, traders should consider risk management and monitor other relevant factors before making trading decisions.



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