Despite a slightly weaker close on Wednesday, the SPY, tracking the S&P 500, may surge to a new record high today.
Recent spikes in copper, gold, and WTI crude oil prices have spurred a rally in energy stocks and miners, bolstering market sentiment.
Traders await key US economic data today, including PPI and retail sales figures amid expectations of continued bullish momentum in the SPY.
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The SPY, which is designed to track the S&P 500 stock market index, could be heading to a new record high today despite a slightly weaker close on Wednesday.
While the tech sector (NYSE:XLK) rally has weakened in recent days, other sectors such as industrials (NYSE:XLI), energy (NYSE:XLE), and financials (NYSE:XLF) have started to outperform.
We have seen a big rise in copper and gold prices of late, while WTI crude oil has surpassed the $80 level. Rising commodity prices have helped to fuel a rally in energy stocks and miners.
Stocks remain buoyant despite the release of slightly hotter-than-expected US inflation data earlier this week, which failed to dampen expectations of a rate cut from the Federal Reserve in the coming months.
Why have commodity prices rallied?
In short, because there’s optimism about a Chinese demand recovery. We have seen metal prices like copper and silver break out this week, with the former rising above $4.00 and the latter hitting $25 per ounce. WTI crude oil has hit $80 per barrel today.
In so far as copper is concerned, its gains coincided with a report of an agreement being reached among some Chinese smelters to cut production due to a collapse in processing fees, raising fears about a shortage of refined metal.
Chinese smelters, which are the leading global producers and consumers of refined copper, are encountering financial difficulties due to declining fees for converting copper concentrate into metal. This situation raises the possibility of production cuts, which could result in a supply shortage.
What are US traders watching today?
Later today, we will have the latest US producer price inflation and retail sales data, as well as the usual weekly jobless claims figures.
In January, the US Producer Price Index (PPI) and Consumer Price Index (CPI) demonstrated unexpected strength, prompting speculation that a similar scenario might unfold following the recent release of February's CPI report, which also indicated sustained robustness. It is expected that retail sales will rise by 0.8% in February, following a decrease in spending caused by severe weather conditions in January.
Retail sales data may well impact retail stocks in the direction of surprise. PPI data has the potential to impact Fed rate cut expectations, although judging by the reaction of CPI data, a slightly stronger print may only cause a temporary pullback in risk assets.
SPY technical analysis and trade ideas
We can argue that the markets are extremely overbought and whatnot, but ultimately it is price action that counts and so far, there are no indications of a top. Indeed, as the SPY remains comfortably above the 21-day exponential moving average and a bullish trend line, dip-buying is the trade that continues to work well in these conditions.
So, the technical outlook on the SPY remains bullish for as long as the series of higher highs and higher lows remains intact. It is therefore important that the bulls continue to hold their ground and defend key support levels.
Among the support levels to watch, 511.88 (the high from Monday) was defended successfully on Tuesday, leading to a nice bounce despite the stronger CPI data that was reported on the day. On Wednesday, though, the market consolidated, but crucially there wasn’t much technical damage to worry the bulls. Even if Monday’s high at 511.88 breaks, this wouldn’t necessarily mark the end of the bullish trend for as long as we don’t create a short-term lower low.
The line in the sand for me is around 505.00, which marks the recent lows. If SPY were to go below this level, then not only would we have created a lower low, but we would have also broken the bullish trend line and the 21-day exponential average.
On the upside, liquidity above Friday’s high at 518.22 is going to be the next objective for the bulls. A clean move above that would target the resistance trend of the bullish channel at around the 525.00 area.
What is SPY?
The SPDR S&P 500 ETF Trust is an exchange-traded fund listed on the NYSE Arca under the ticker symbol SPY. Its objective is to mirror the performance of the S&P 500 stock market index and is recognized as the oldest and most sizable ETF in the United States.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.