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The S&P 500 futures were edging higher early Thursday, mirroring gains across European markets and extending Wednesday’s late-session rally on Wall Street.  But following the release of soft ADP private payrolls and weekly jobless claims data, it gave up those slight gains. The buying in the previous session was led by heavyweight technology stocks, with sentiment buoyed by the perception that the Federal Reserve may be edging closer to a September rate cut. Following a weaker JOLTS job openings data, today’s ADP and jobless claims offered further evidence of cooling in the labour market, reinforcing hopes of looser policy. More employment data is on the way: ISM Services employment index, which should help refine expectations for Friday’s non-farm payrolls report – the week’s main event.
 

Watch the bond markets

It was the slump in long-dated global bonds that caused the S&P 500 index to drop on Tuesday. When they recovered on Wednesday, risk appetite improved and up went stocks. This morning saw Treasuries extend those gains, with the yield on the benchmark 10-year notes falling two basis points to 4.19.

Despite the calm, concerns over stretched valuations and government finances remain and this is something that could be back in focus should this week’s data further highlight stagflation risks.

We will get more updates on the jobs market today with the release of the ADP private payrolls report, weekly unemployment claims and the employment component of the ISM Services PMI. Friday’s non-farm payrolls report will be quite important in as far as expectations for the Fed’s future policy is concerned.
 

S&P 500 technical analysis and trade ideas

The ES futures chart still paints an overall bullish picture, but price action in the last few days hasn’t been great. Things have turned a bit muddy after the index broke its short-term trend line during Tuesday’s drop, which gave rise to follow-up technical selling before dip-buyers stepped in right at 6370 support. The index has now arrived at a potential resistance zone circa 6470, which marks a prior support and resistance area and the underside of the broken trend line. The bulls will need to reclaim this level on a daily closing basis if we are to see a push beyond 6,500 in the coming days.
 

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Looking at the shape of the candlestick patterns, there is an inside bar formation following yesterday’s bounce on the daily time frame. Given the location of the inside bar pattern i.e., just beneath the trend line, and taking into account the recent loss of bullish momentum, one has to be extra careful when trading on the back of it. Indeed, the bears would be eyeing a potential failure of the inside bar scenario. That is, if we go back below the high of Tuesday’s range (6464) and hold below it, then in all likelihood, the index may go on to drop to take out liquidity that would now be resting below the low of Tuesday’s range (6425). If that level is taken out, then why stop there? A bigger pool of liquidity is likely to be below the 6370 support level given that area is a more defined support zone.

In any case, while we could see some chop and churn in the short-term, especially as it is an NFP week, the longer-term bullish price structure means the downside risks could be limited. In the event of a mini correction, we could see a decent bounce off the old record high of around 6150- 6166 area. Ahead of this medium term support area, 6,300 and 6,245 are additional support levels to watch.

On the upside, there is not much resistance beyond the aforementioned 6470 and 6500 levels, given that we are trading not too far off the recently achieved record high. Round handles like 6,500, 6,600 and Fibonacci extension levels such as 6530 (i.e., the 127.2% extension of the Feb-April downswing) are among the upside targets.

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