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S&P 500 Index Forecast: AI Rally and Strong ISM Data Keep 8,150 In Sight
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Key Points:
- The S&P 500 Index is operating in a highly bullish nature with the 20-brick Renko holding above the 21-EMA, 50-SMA and 500-SMA.
- US ISM Manufacturing PMI came out at 54, beating the forecast and rising from 52.7 prior.
- Seasonality supports the upside case in June, with an average return of over 1.5% and a 90% likelihood of a positive month based on the last 10 years.
AI Leads, Mega Cap Drag Lingers
The 1st trading session in June has AI stocks taking the lead once more. Micron is up 6.77%, Oracle is up 8.41%, IBM is up 8.38%, and Dell is near +7.9% while Nvidia is also contributing with a 4.77% return at the time of writing. But some large/mega cap names are taking a hit. Amazon is down over 3%, Tesla is declining by over 3.5% as well, Apple is down 1.90% and Google is lower by 1.34%. So mixed movements in tech. S&P 500 is flat to slightly positive on the day.
AI Strength Offsets Mega Cap Weakness
June Seasonality Helps
June is for the S&P 500 bulls. Analyzing the seasonality we see that June has an average return of over 1.50%, with 9 positive months and only 1 negative month. That’s an extremely positive month. YTD the S&P 500 Index is up over 10% and has an average return of over 13.50%. So we may have some more room to go for the Index.
ISM Gives Bulls Macro Cover
ISM data came out at 54, a little above the forecast of 53 and up from the prior reading of 52.7. Manufacturing demand is still there, presumably helped by AI related investment and front loaded orders.
Manufacturing PMI Beats Forecast
Weekly Chart Targets 8,150
Price has seemingly cleared the 1.618 Fibonacci zone near 7,445 and is now entering higher ground, with the 2.618 extension near 8,145 sitting as the next big target. The dual Supertrends are pointing higher and not even flat, which is another bullish sign on the weekly chart.
Weekly S&P 500 Index Structure Pushes Toward 8,150
Daily RSI Pushed Above Overbought Level
The S&P 500 Index is trending smoothly above the daily 21-EMA. RSI is over 70 which is an overbought level but that doesn’t mean an immediate pullback or correction. It just means that demand is a little above where it can be, pushing momentum to a bit of an extended level. But the RSI can remain there for some time. Also seeing some bearish divergence on the RSI where the S&P 500 Index is making higher highs while the RSI made a lower high. So don’t be surprised if we get a bit of a pullback in the near term.
Daily Trend Looks A Bit Stretched
Renko Breakout Holds Firm
The trend looks great for the S&P 500 Index on the Renko chart. The bricks are above the 21-EMA, 50-SMA and 500-SMA. RSI is nearing the 70 overbought level which shows strong momentum. What we should be wary of the bearish divergence on the Z-Score SMA. That may signal a short pullback in the Index.
20-Brick Renko Holds Bullish Breakout
Support Levels: 7,240, 6,780, 6,310
Resistance Levels: 7,450, 8,150
Medium Term Path: While my view is bullish with a positive bias, I am seeing some bearish divergence both on the day and Renko charts. This leads me to think that there may be some sort of pullback in the near term. Nothing too exorbitant, nothing more than a 3% decline, given all the data in front of me.
About the Author
Cedric Thompsonauthor
Cedric Thompson, CMT, CFA, is an investment strategist with experience in asset management, corporate strategy, and multi-asset investing.
