S&P 500 Forecast: AI Stocks Drive Rally as Hot PPI and Weak Breadth Test Bulls

S&P 500 Heat Map Shows AI Strength Against Retail Weakness

We see several movers in today’s S&P 500 Index trading session. TXN (+4.51%), MU (+4.04%), QCOM (+3.61%), and TSLA (+3.42%) are putting in the work with chip stocks getting a bid from optimism around the Trump-Xi China summit and the possibility of better trade conditions for US semiconductor names. Musk is also heading to China for a potential FSD approval. More so Micron has an extra tailwind from Samsung strike concerns, which could tighten memory-chip supply even more.

The weaker stocks for today are HD (-3.14%), CRM (-4.20%), PLTR (-3.99%). There’s still some pressure on retail linked cyclicals and high-multiple software. But all in all the S&P 500 Index is moving higher.

Semiconductors and Tesla Lead the Upside While Home Depot and Software Names Drag on Index Breadth

S&P 500 Index Rally Narrows as Breadth Continues to Slip

What’s a bit concerning is the S&P 500’s market breadth. It’s down to 40.8% while the Index is making all-time highs. This means only a handful of large cap stocks are carrying the Index. Were these stocks to decline, we would surely see a drop in the S&P 500 Index.

S&P 500 Pushes Near Recent Highs While Fewer Stocks Trade Above Their 20-Day Moving Average

Hot PPI Print Should Test S&P 500 Rally

US producer prices rose 1.4% month-over-month, twice as high as the 0.7% forecast and even higher than the reading before of 0.5%. Upstream inflation is still very much alive. This increased inflation can squeeze earnings’ margins, especially for companies that can’t pass costs through easily. This is also another data point that tells the Fed that it can’t cut rates. Higher for longer it is.

US PPI Jumps Above Forecast, Raising Fresh Inflation Pressure For Equities

S&P 500 Renko Trending Bullishly

Everytime I write this update and look at the S&P 500 Index through the lens of the Renko layout I say to myself, “What a beauty”. This is a text book definition of an uptrend if I ever saw one. The Supertrend flipped back green as the bricks cruise along the 50-SMA. Overall trend is above the long-term 500-SMA with the RSI above 60 but not at overbought levels similar to the Z-Score SMA which is back to trending higher. 8,000 SPX anyone?

12-Brick S&P 500 Index Renko Pushing Through Resistance

S&P 500 12-brick Renko chart showing price above the 50-SMA and the 500-SMA, with RSI near 64 and Z-Score around 0.9.

Source: TradingView.com

The Verdict

Current Trend Direction: Bullish

Bias: Positive

Support Levels: 7,100, 6,625

Resistance Levels: 7,450, 8,150

Medium Term Path: It is expected that a handful of large-cap names will carry the market-cap weighted S&P 500 Index higher as it pushes through 7,450 hopefully before the end of this week. From there the next level to watch is 8,150. We need to keep a close eye on those stocks that are carrying the Index and monitor for any breakdown in trend in them. Because when they go, the S&P 500 Index will go as well.