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S&P 500 Index: Was Last Week’s Recovery A Deadcat Bounce?

The recovery shown by the S&P 500 index last week is fading as the swing trades lock their profits. I’ve been skeptical of this year’s rally since the benchmark index failed to gain strength above the 4,550 points level. I even warned my readers about the downtrend that followed.

SPX closed last week at 4,328 points. On Monday, the E-mini futures stood at 4,365 during their London session. If you are still bullish on the US equities for the rest of this year, the recent higher high on the daily chart must be encouraging, but there’s a catch.

After a bounce from the 200 DMA at the start of October, SPY is yet to break above the 50 DMA. Many analysts consider an asset in an uptrend only when it trades above both of these moving averages.

Since the release of the September CPI data, the S&P 500 index has dropped 49 points. The report showed that the YoY and MoM inflation remained slightly more than expected in the last month of Q3. This caused a rebound in the dollar strength index, which increased the selling pressure on the US stocks.

If we have a deeper look at this year’s rally, the largest 7 stocks in the S&P 500 have generated 92% returns on average in 2023. This was not the case in the 2020-21 bull run when the gains were more properly distributed across different sectors.

S&P 500 Index Forecast

As I have mentioned in my previous forecasts, the 4,336 level is one of the most critical levels on the SPX chart. The index has made a higher high on the daily chart, which can be considered a sign of strength, but it is yet to flip this key level into support.

In case of a breakdown below the 4,336 level, I will be very cautious in taking any long positions. A correction below the 200 MA will confirm the trend reverse and flip the S&P 500 index forecast bearish for me. On the other hand, a strong bounce from the current level may give the bulls more confidence to target the 4,545 level once again.

S&P 500 Analysis

S&P 500 index analysis and technical forecast
SPX Chart