S&P500: 50-Day Moving Average Holds as Tech Stocks Drive Market Higher

Nasdaq Led Monday’s Bounce and the Ceasefire Held Long Enough to Buy

At 16:48 GMT the Dow Jones Industrial Average is trading at 52,087.66, up 211.55 points or 0.41%. The S&P 500 is at 7,411.60, up 57.58 or 0.78%. The Nasdaq Composite climbed 344.43 points or 1.36% to 25,642.04. The Nasdaq took the worst damage last week with a 4.6% decline and Monday’s 1.36% bounce is the market’s first attempt to find out whether last week was a correction or the start of something larger.

The S&P 500 is holding above the 50-day moving average after the mid-session. Five of eleven sectors are in positive territory. Communications services led at 2.9% on the Comcast spinoff announcement. Information technology gained 0.9% and is on track to end a five-session losing streak.

The breadth is not overwhelming. Decliners slightly outnumbered advancers on the NYSE at 1.05-to-1. The Nasdaq was nearly even at 1.01-to-1. Neither index set a new 52-week high or low. This is a bounce, not a breakout.

Daily September E-mini S&P 500 Index Futures Technical Analysis

September E-mini S&P 500 Index futures are progressing higher after the mid-session on Monday.

The main trend remains down, according to the daily swing chart. However, the index is gaining strength after crossing to the strong side of the 50-day moving average at 7449.44.

Trader reaction to this indicator will set the tone into the close. A sustained move above it will indicate the presence of buyers. This could drive the index into the retracement zone at 7493.00 to 7540.50. This area is critical to the short-term direction. Overtaking it with conviction puts the two tops at 7648.75 and 7693.75 back on the radar.

On the downside, look for renewed selling pressure if the minor bottom at 7357.25 fails as support. This could lead to a quick test of the main bottom at 7292.25. This price is a potential trigger point for an acceleration into the 200-day moving average at 7063.04 and the long-term retracement zone at 7047.75 to 6895.25.

To summarize, look for continued strength into the close with 7493.00 to 7540.50 the key target area. If the 50-day MA fails late then look for a retest of the minor bottom at 7357.25. Losses could extend into 7292.25 if the minor bottom doesn’t hold as support.

The Ceasefire Eased Enough to Let Traders Buy

Iranian and U.S. technical teams are expected to meet in Doha in the coming days to work on an interim peace deal. Earlier rounds of talks had brought both sides close to an agreement before stalling. Small flare-ups in fighting have continued but the tone Monday was calmer than the weekend suggested it would be.

Richard de Chazal at William Blair noted that the pattern has become familiar. Tensions rise into the weekend and ease before Monday’s open. The market is trading that pattern. When the geopolitical risk pulls back even temporarily, investors step in and buy. Whether that cycle breaks this week depends on what comes out of the Doha meetings and whether the ceasefire holds through the holiday weekend.

Comcast Surged 6.4% on the Spinoff and Carried the Sector

Comcast announced plans to spin off NBCUniversal and Sky into a separate publicly traded company through a tax-free transaction. The stock gained 6.4% and that single name was responsible for most of the 2.9% gain in the communications services sector. When a company that large announces a separation, the market is saying the pieces are worth more apart than together and 6.4% on the day the plan is announced tells you the discount had been building for a while.

Alphabet Joined the Dow and Gained 4.4% on Day One

Alphabet replaced Verizon in the Dow Jones Industrial Average on Monday and the stock gained 4.4% in its first session as a Dow component. Index fund rebalancing creates demand on the day of inclusion and Alphabet got the benefit of it. Verizon slipped after last week’s warning about $700 million to $800 million in second-quarter losses.

SpaceX added 2.3% ahead of its Nasdaq-100 inclusion on July 7. The same forced buying dynamic that lifted Alphabet on its Dow addition is going to support SpaceX through the end of the week as index funds position ahead of the rebalancing date.

Stocks in the News

Martin Marietta Materials fell 6.4% after announcing a $13.5 billion cash merger with Lhoist North America. Two sessions of selling since the announcement tells you the market is not sold on the price or the strategic rationale.

RBC Capital Markets raised its 12-month S&P 500 target to 8,150 from 7,900, citing strong earnings and a supportive economic backdrop. Ben Snider at Goldman Sachs pointed out that the S&P 500 has returned 21% over the past 12 months and all of it came from earnings growth, not multiple expansion. Earnings season starts in the coming weeks and the second-quarter reports will test whether that growth rate holds.

What to Watch

The S&P 500 crossed above the 50-day moving average Monday and the close determines whether it holds. A sustained finish above 7449.44 sets up a push into a key retracement zone. The Nasdaq is close to ending a five-session losing streak and the tech names that led last week’s selling, Nvidia, Alphabet, Meta, Apple, Amazon, are the ones that have to hold Monday’s gains through the week to confirm the bounce has substance.

Weekend tension followed by Monday relief is becoming the pattern on the ceasefire and the market is trading it until Doha proves otherwise. The June jobs report Thursday is the next catalyst. Earnings season follows and Goldman’s point about the entire 12-month S&P return coming from earnings growth rather than multiple expansion puts every company that reports on notice. RBC’s 8,150 target works if the earnings hold. Last week’s rotation into healthcare works if they don’t.

More Information in our Economic Calendar.