Morning Update: S&P 500 Index and Dow Jones Rise on Strong M&A Activity

US equities are rising today as traders reflect on the rising M&A activity in the United. They are also optimistic that the government will pass another stimulus as economic data continues to disappoint. Futures tied to the Dow Jones, S&P 500 index, and Nasdaq 100 are up by 0.25%, 0.30%, and 0.30%, respectively.

The biggest driver for US stocks is the increasing potential for more government funding in the next few weeks. On the surface, it seems as if the White House and Congress will not reach a deal. However, the reality is that such differences usually happen when two sides are nearing a deal. Also, with data from the US disappointing, the two sides will find it difficult to face voters without a deal.

Mergers and acquisition activity is also pushing the Dow Jones and other US indices up. Yesterday, Morgan Stanley announced that it would purchase Eaton Vance, a leading money manager with more than $500 billion in assets, for $7 billion.

Later on, it was reported that AMD was considering acquiring Xilinx, in a deal that will be valued at more than $30 billion. Also, IBM revealed that it will separate its managed infrastructure service, in a deal that will create a separate company worth more than $25 billion.

Meanwhile, in Europe, futures are relatively unchanged. In the United Kingdom, futures tied to the FTSE 100 are up by just 0.13% as investors reflect on the disappointing data from the country. In Germany, the DAX index is down by 0.30% while in France, the CAC 40 is up by just 0.18%.

S&P 500 index technical outlook

The four-hour chart shows that the S&P 500 index has been in a strong upward trend, pushing it to a high of $3,470. This price is slightly above the 61.8% Fibonacci retracement level. It is also above the 50-day and 25-day exponential moving averages. Most importantly, the S&P 500 index has formed what seems to be a shooting star pattern, which is usually bearish.

Therefore, while I expect the longer-term bullish trend to remain, I suspect that the pair will have a pullback today. If it happens, the key level to watch will be the 61.8% retracement level at $3445. On the flip side, a move above the resistance level at 3470 will invalidate this trend.

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S&P 500 technical chart

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