S&P500 Forecast: Rally Continuation in Focus as Bank Earnings Kick Off

S&P 500 Futures Edge Higher as Bulls Try to Build on Monday’s Dramatic Reversal

June E-mini S&P 500 Index futures are inching higher early Tuesday as investors try to resume Monday’s dramatic rally. The session yesterday was a clear statement from buyers. The market confirmed Friday’s closing price reversal top early in the session, the big seller never showed up and strong buyers came in to negate the potentially bearish pattern entirely.

Technical Outlook

Yesterday’s price action clearly defined the importance of the 6725.00 to 6812.50 retracement zone as support. It also demonstrated that this market is being controlled by both the 50-day moving average at 6807.25 and the 200-day moving average at 6798.02. The futures contract closed on the strong side of both indicators, making them support.

If the upside momentum is to continue then buyers are going to have to keep defending the moving averages or risk a collapse under Monday’s low at 6767.00.

On the upside, overnight the futures contract is currently testing the major trendline that started at the 7096.50 record high and was previously tested at 7065.00 and 7035.00. This potential resistance and trigger point for an upside breakout comes in at 6936.50 on Tuesday. Trader reaction to this price could set the tone.

A breakout over 6936.50 will indicate the presence of buyers with traders having a clean shot at 7035.00. A failure to overcome and sustain a rally will signal the return of sellers with a minor downside target at 6849.25, followed by a major support cluster at 6767.00 to 6812.50.

Stocks Shrug Off Iran Tensions and Rally Hard

U.S. equity futures were little changed Tuesday following a strong Monday session that saw the S&P 500 fully recover its war-driven losses. The rebound told you something important about investor conviction. The market looked at the U.S.-Iran situation and decided it wasn’t going to materially disrupt economic conditions. Risk appetite stabilized fast.

The rally was broad. The Dow Jones Industrial Average and Nasdaq-100 both advanced as buyers stepped in after last week’s weakness. Rising oil prices with WTI crude nearing $100 a barrel failed to pressure equities and that’s the key takeaway. When oil runs and stocks don’t sell off, the market is telling you it believes the conflict stays contained.

Tech Leads, Goldman Sachs the Outlier

Technology stocks outperformed and drove the overall market gains as investors rotated into mega-cap names viewed as resilient in a higher rate environment. The Technology Select Sector SPDR Fund rose roughly 2%. Financials were mixed. Goldman Sachs declined despite beating profit expectations as weaker trading revenue weighed on sentiment.

What’s Next

JPMorgan Chase and Wells Fargo report today and those numbers will give traders a look at credit conditions and consumer health. Oil price stability and further conflict developments stay in the background. Sustained upside from here depends on earnings confirming that the economy is holding up. The setup is there for a continuation rally but the banks need to deliver.

More Information in our Economic Calendar.