The S&P 500 could rally as high as 4300 points in the short term
Concretely, the outlook becomes bullish again thanks to this signal and the risk/return ratio seems interesting since the S&P 500 is still moving close to its recent lowest closing price at 3900 points. The S&P 500 could rise to its high for the month at around 4300 points, or even its April peak at around 4600 points.
A rebound in the S&P 500 from current levels is also consistent with extremely pessimistic near-term investor sentiment. Sentiment surveys mostly point to extremely pessimistic sentiment, with the Investors Intelligence survey at its lowest level since 2015.
However, the publication of core PCE inflation this afternoon will be crucial for equity markets. Expected up 4.9% year-on-year, a higher reading would heighten fears around inflation and the Fed’s pace of monetary tightening, which would weaken the market. Conversely, a weaker than expected reading should support the rebound.
The bullish outlook would be invalidated in the event of a pullback below the support at 3900 points.
Entrance: Purchase above 4000 points
Stop: 3900 points
Objective: 4300, then 4600 points
Risk/return ratio: >2
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