S&P 500 Bulls Breaking 7,175 as GDP, Core PCE and AI Momentum Support A May Rally

The S&P 500 Index is ending the month on a very positive note. After a grueling pullback in March the Index is set to end April up over 12%. That’s a nice set of capital appreciation indeed.

S&P 500 Climbs to Approx. 7,200 to End April Strong

Line chart of S&P 500 Index over past 5 trading days

Source: TradingView

Over the past 5 days for today’s session the Index is up over 0.75%. Some of the gainers include Qualcomm (QCOM), Teradyne Inc. (TER) and Quanta Services, Inc. (PWR), which are up 15% and 14% respectively. The move in QCOM is part of the AI play as the firm iis aggressively expanding into the AI data center chip market. CEO Cristiano Amon revealed plans for custom AI processors and CPUs. For QCOM this is a strategic shift to diversify revenue and compete in large scale AI computing.

QCOM’s bricks are off the highs with a negative Supertrend flip. Nonetheless the stock is trading above trend, as seen by its distance above its 500-SMA on the Renko chart. The RSI is above 50, which is an indication that the short-term pullback is nearing its end. The Z-Score SMA is yet to reflect this though so traders shouldn’t be too eager to enter as yet.

QCOM’s Renko Off Highs

1-brick Renko of QCOM

Source: TradingView

Indeed, the innovation in AI is currently insulating the S&P 500 Index from war-driven costs and sticky inflation. The major risk to me is inflation and to the extent at which energy prices will stay elevated. To answer that we have to follow the talks between the US and Iran so that the passage of the black gold could return to normalcy.

US GDP and Core PCE Support S&P 500 Bulls as Fed Rate-Hike Risk Eases

For me I am surprised that with all the geopolitical conflicts that the US GDP didn’t fall further, even below 2%.

But I’m not an economist. I’m a strategist and investor. All this release is saying to me is that the US economy isn’t running too hot, which would keep yields stymied. For now. Furthermore, there’s no recession risk. All this is is a macro backdrop that supports traders’ earnings expectations without forcing the Fed into a more aggressive stance.

US GDP Growth Printed 2% QoQ, missing the 2.3% Forecast

Bar chart showing US GDP Growth Rate QoQ

Source: TradingView

There was no spike in Core PCE as it landed in line with forecasts. So that means the Fed would not be as aggressive as to hike rates.

But for how long?

With energy prices this elevated the inflation figures are bound to increase. Not for this report though. Perhaps in the months to come. In the meantime the momentum remains positive for US stocks. The economic excuse is still present to remain in equities.

Core PCE rose 0.3% month-over-month, Matching Forecasts

Bar chart showing the Core PCE Prince Index month over month

Source: TradingView

S&P 500 Renko Rally Points to Further Upside in May

From the Renko view the S&P 500 Index is finishing April strong, with a rally towards 7,200. The Supertrend indicator has flipped positive with the RSI testing the 60 mark. This is very positive as it relates to positive momentum for the Index. Additionally, the Z-Score SMA is not yet as exhausted territory so there is still some room to run.

There’s a clear path higher for the Index, making May another positive month for the S&P 500.

12-Brick S&P 500 Renko shows Momentum Rebuilding

12-brick Renko chart of the SPX 500 Index

Source: TradingView

The Verdict

Current Trend Direction: Bullish

Bias: Positive

Support Levels: 6,310, 6,920

Resistance Levels: 7,450, 8,150

Medium Term Path: To me this move is looking like a springboard for the S&P 500 The 7,200 level is acting as the immediate breakout zone. A sustained move above there can take the Index towards 7,450. This setup is being supported by the macro backdrop which is firm and not overheating, and continued AI-led leadership for the most part. The path favours a May continuation rally. However, a break below 6,920 would negate this view. Volatility as seen by the VIX is sub 20 so it is unlikely that that level would be broken in the short to medium term.