Where next after the S&P 500 hits a new all-time high?

The S&P 500 futures reached another all-time high on Monday, January 22, 2024. This was not a surprise for traders using classical chart patterns as the index had carved out an inverse head and shoulders pattern since December 18, 2023.  

The pattern is called the head and shoulders pattern, as it looks like the shape of a human. In the chart below, we look at this pattern's inverse. The left shoulder, as annotated in the chart, is followed by the lower low, the head, and a higher low, called the right shoulder. Where there are local high intercepts, we add a line called the neckline. As this line is breached, the pattern is activated. The difference between the neckline and the lowest point of the pattern, the “head”, is added to the neckline. In the case of the S&P 500 today, it suggests that the index could reach as high as 4941. The pattern will remain in play as long as the price does not trade deeply back into the pattern by trading below the 4779 level.  


 

Why is the S&P 500 rising?  

 

The S&P 500 is rising as the market has realised that the world and US economy can cope with high interest rates, as shown by last week’s better-than-expected US retail sales, and US jobless claims remain low. The same interest rates spooking the markets are now expected to turn lower by summer at the latest. Also, leading indicators like the PMIs are anticipated to rise, suggesting the world economy is turning the corner. 
 

What are the challenges that the S&P 500 is facing?  

 

The famed CNN Fear and Greed index, which suggested buying in October and November of 2023, was correct; the market was dominated by extreme fear. The same index is now at excessive greed levels after the S&P 500 rose 18% from its November low. In other words, it tells us to be agile and ready for a more significant correction. So, what is right, the charts of the fear and greed index? My preference is to combine both and place extra weight on the charts, which suggests we should remain bullish for now.

Source: CNN