Hopes of summer surge drive S&P 500 above 4,000: Where to next?

Traders are starting to bet on sultry summer surge in US economic activity as the weather warms and vaccine distribution continues apace...

Uptrend 2

To say that the recent economic data out of the US has been strong would be an understatement.

Fresh on the heels of last week’s jaw-dropping 64.7 reading in the ISM manufacturing PMI survey, a 37-year high, yesterday’s ISM services PMI figure came in at 63.7, a record high for the 40+ years the survey has been ongoing. Meanwhile, Friday’s NFP report showed that the US economy created a staggering 916k net new jobs in March, the highest print in the last seven months. Far from a mere “return to normal,” traders are starting to bet on sultry summer surge in US economic activity as the weather warms and vaccine distribution continues apace.

As the data continues to exceed expectations, traders continue to drive US indices higher. Even with the huge FANMAG stocks lagging the broader market, we’ve seen a smooth rotation to industrial, material, retail, and other “reopening” sectors. As the chart below shows, the S&P 500 has grinded its way steadily higher for a full year now, with any temporary dips finding support near the bottom of a rising channel and the 100-day EMA:

Source: StoneX, TradingView

With the widely-followed index now holding above the key psychological level at 4,000, bulls may feel emboldened to push the S&P 500 up to the next noteworthy level of resistance, the 161.8% Fibonacci extension of the Q1 2020 COVID-19 pandemic selloff near 4140. That area also marks the top of the current upward-trending channel, which could provide another excuse for buyers to take short-term profits.

Regardless, the S&P 500 has closed below its 50-day EMA exactly once in the past five months, so traders will likely continue to buy any near-term dips as long as the index remains above 3900 in the coming weeks.

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