Key levels in the S&P to watch

Stocks are testing the top of this summer’s range, an important resistance level that could help determine the length of the rally.

The S&P 500 rose above the key 4,177 level on Monday, but quickly fell below that level in the afternoon US session. This level was the highest the index reached on June 2.

The S&P 500 hit a low of 3,636 on June 17 before heading higher. The Nasdaq 100, which is represented by the Invesco QQQ Trust ETF, has already broken above its June high.

Whenever you are looking at a previous high, it is important to see if the sellers return there and if that opens doors for higher prices. The S&P’s hold above its 8-day moving average, which was at 4,107 on Friday, was important for Monday’s boost in stocks, due to the fact that there are many short positions and many more waiting for the higher levels.

The market gave up early gains and was mixed in afternoon trade on Monday. The S&P 500 was almost flat at 4,143.

Analysts expect another move after the CPI is released on Wednesday – if it is in line with expectations or slightly softer.

The consumer price index is expected to rise 8.7% in July, according to Dow Jones, a slight slowdown from June’s 9.1% jump. If the CPI report comes in higher than expected, the market is likely to fall quite quickly.

If the S&P holds the level from 4177 to 4180, there could be another test around 4220 – a strong resistance zone that was tested in June.

The next big important level will be around 4300. The 200-day moving average is currently 4336, this could prove to be a major resistance area.

According to analysts, the market has already bottomed out in June, but could be volatile and head down in the September-October period before turning up at the end of the year.

Since 1950, there has never been a bear market rally that exceeded a 50% correction and then made new cycle lows. A close above 4231 would not mean that we immediately reverse bullish positions and buy everything, as there are still many negative divergences and negative macroeconomic factors.

 Dealer Anatoliy Pavlov

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