S&P 500 Technical Analysis - Strong rally as hedges into CPI fade

Basic overview

The US CPI yesterday's report was in line with expectations and sealed the 25 bps cut next week with the probabilities around 97%. The S&P 500 rallied strongly on fears of potentially higher-than-expected data and hedgers went into the CPI release without pause.

Overall, the market remains largely unchanged around three rate cuts by the end of 2025. We will likely need stronger evidence of re-accelerating inflation to price in the remaining rate cuts . For now, the conditions for further upside remain in place.

In fact, Trump's policies should be a positive driver for growth in 2025 and with the Fed still in an easing cycle, growth should remain positive and may even accelerate as seen recently with the Atlanta indicator Fed GDPNow.

The risk in 2025 will be inflation and the Fed's response function. Currently, the Fed's response is that a strong economy would warrant a slower pace in the easing cycle, not tightening. That should still be supportive for the stock market.

If the Fed's response action were to change to a possible tightening, that would likely trigger a sharp correction in the stock market on an expected economic slowdown. For now, we are still in a “buy the dip” environment.

S&P 500 Technical Analysis – Daily Timeframe

S&P 500 daily

On the daily chart, we can see that the S&P 500 bounced around the 6053 level and extended the rally to recent highs after the US CPI release. The buyers will continue to aim for new all-time highs, while the sellers will want to see the price fall below the 6053 level to set up for a drop into the key level. line of motion
around the 6000 level.

S&P 500 Technical Analysis – 4 Hour Timeframe

S&P 500 4 hours

On the 4 hour chart, we can see more clearly the recent price action with the bounce around the 6053 level and the rally out of the US CPI spread. The sellers are likely to step in around the 6111 high to set up for a drop back to the 6053 level, while the buyers will look for a break higher to increase the bullish bets to new highs.

S&P 500 Technical Analysis – 1 hour timeframe

S&P 500 1 hour

On the 1 hour chart, we can see that we have an interesting zone around the 6075 level where the price has responded several times in the last few days. If we get a pullback into it, the buyers are likely to enter with marked risk below the range to set up a rally to new highs with better risk for reward. The sellers, on the other hand, will be looking for a break below a position to fall into the 6053 level. The red lines define the average daily range for today.