Stocks (S&P 500) on the Brink of Big Breakout
Stocks rallied across the board on Tuesday for several reasons besides a continued positive earnings season. As a result, the S&P 500 (SPX) and its tradable ETF version, SPY, rose to the brink of a big breakout.
U.S. Government Shutdown Likely Averted
One driving force for the rally on Tuesday was investors’ increased confidence that another U.S. government shutdown will likely be averted. U.S. Congressional leaders settled upon a tentative deal late on Monday to avoid another shutdown that would otherwise occur this coming Friday. Though President Trump said on Tuesday that he is “not happy” with the deal, he added that he doesn’t think that there will be another shutdown.
U.S.-China Trade Optimism
Also driving Tuesday’s stock rally was greater confidence that U.S.-China trade negotiations may actually have a positive outcome after all. Markets showed optimism that U.S. trade negotiators, who are currently in China, should be able to hammer out a deal by early March. That’s the trade war ‘ceasefire’ deadline when the 90-day window of U.S.-China negotiations is slated to close. Adding to the optimism were Trump’s remarks that he would consider postponing the deadline (but that he “would prefer not to”). (See also: Chinese Yuan Responds to U.S.-China Trade Fears.)
S&P 500 (SPX) Technicals
From a technical perspective, as shown on the chart above, the sharp market rally on Tuesday boosted the S&P 500 (SPX) to a tentative breakout above key resistance. In this case, that resistance was the 200-day moving average, currently around the 2743 level. SPX hit an intraday high on Tuesday around 2748 before closing at 2744.73. In the process, the benchmark index hit a new two-month high, exceeding early February’s high.
Though Tuesday’s breakout was highly tentative and could easily turn into a downside reversal situation, investors’ bullish sentiment is currently strong and hard to ignore. With any further bullish momentum that clears the 200-day moving average resistance, the next major upside target is around the 2815 resistance area.
IMPORTANT: The information above should not be construed as investment advice and should not be considered as a solicitation to buy or sell securities. Past performance is not indicative of future results. Trading and investing in the financial markets involves substantial risk of loss, and may not be suitable for all investors.
Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.
Chief Market Strategist at The Technicals
With more than two decades of experience as an equity analyst for several major research firms, Don has covered individual stocks (both technically and fundamentally) across a wide variety of sectors and industries, including tech, financial, and retail. He has been quoted regularly in key financial media like Bloomberg and Reuters. Contact Don