- Profit-taking hit S&P 500 futures as traders awaited fresh catalysts and earnings season.
- Dip-buying remains a favored strategy, supported by a strong bullish trend and AI-driven optimism.
- Key support levels at 6686 and 6611 are watched to gauge momentum and downside risk.
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S&P 500 futures eased lower along with European indices in the early parts of Thursday’s session. Traders didn’t have any new drivers to guide the market’s next move, so they apparently took profit, which has been the theme since the benchmark index hit a new all-time high and then reversed on Tuesday.
But it is far too early to declare an end to what has been a very strong bullish trend. Dip-buyers have consistently stepped in during market pullbacks, and we could see yet another repeat of that again.
Lack Of Fresh Catalyst Drive Profit-Taking
US stock markets have cooled a little in the last few days, with a lack of any fresh catalysts helping to trigger some profit-taking ahead of the upcoming earnings season. Investors were again reminded by Powell that there is “no risk-free paths” to interest rates, despite the FOMC signalling two are on the way this year.
However, risk appetite remains largely insatiable for technology stocks, and chipmakers in particular, putting concerns about overstretched valuations on a back burner for now. And with the underlying trend remaining bullish, dip-buying is still the go-to strategy in stock markets. But let’s see if the upcoming earnings season will justify high market valuations.
Meanwhile, and data are among the data highlights to watch today.
Will Upcoming Earnings Season Justify Stock Market Valuations?
Up to this point, stock market investors have eagerly bought into every dip, fuelled largely by AI-driven optimism and the consistent earnings outperformance of big tech, which has helped justify their lofty valuations. However, outside the technology space, there is some concern that a bubble might be building, with unsupportive fundamentals.
A recent Bloomberg report highlights this divergence. Analysis from that report showed an index of S&P 500 companies excluding technology had climbed 13% over the past year, while profits increased just 6.4%. More troubling was the materials sector—encompassing miners, chemical producers, and similar industries—which had advanced 9% year-to-date despite a 13% drop in earnings.
The concern is clear: if big tech were to take a breather or face profit-taking pressure, the broader market might struggle to uphold the current rally. A big test therefore, should be provided by the upcoming earnings season due to unofficially kick off in October.
S&P 500 Technical Analysis and Levels to Watch
The S&P 500 and US stock markets in general have cooled off a little from extremely overbought levels. All healthy price action, as investors take profit ahead of the earnings season and amid some valuation concerns. But here is the key takeaway: The market continues to form higher highs and higher lows.
In such conditions, dip-buying remains a sensible strategy for traders, even though the rally appears extended, with the RSI recently crossing 70 on the daily time frame, before easing a little in the last couple of days. But on the weekly and monthly charts, the indicator remains above this threshold.
While elevated RSI readings may raise concerns, they also underscore the strength of market momentum, making it difficult to justify short positions at this stage. Shorting may become more attractive once key support levels start breaking down, but for now, the bias remains to the upside.
Important levels to monitor include 6686, which is a short-term pivotal level and marks the post-FOMC high. Below that, 6611 is another level to watch, which aligns with the rising trend line and 21-day exponential moving average making it a crucial support.
A break below that level could trigger stops and lead to a sharper sell-off towards 6500 and then 6460. Otherwise, the door remains open for a move towards a new high above 6756. Thereafter, the 161.8% Fibonacci extension of the last significant drop from the February high comes in at 6991, with some resistance also likely to emerge around round-number levels such as 6800 and 6900.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel 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 perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.