S&P 500 could challenge its previous all-time high

LAST Wednesday (Aug 28), the S&P 500 Index opened nearly flat at 5,624.51, continuing its recent downtrend to reach an intraday low of 5,560.95. After 2pm Eastern Standard Time, the index managed to stage a mild recovery but still closed lower at 5,592.18, down 33.62 points, or 0.60 per cent for the day.

The current levels indicate that the S&P 500 is trading around 1.32 per cent below its previous record close of 5,667.20, set in July 2024. Notably, the 61.8 per cent Fibonacci retracement level, approximately at 5,668.78, coincides closely with this record high, establishing a significant resistance zone that has yet to be breached.

Adding to the market’s cautious tone, Nvidia, one of the most influential companies globally, released its earnings after the market closed. Despite the AI chipmaker beating both revenue and earnings expectations, its shares tumbled by more than 7 per cent in extended trading as the sales outlook for the current quarter failed to meet investors’ high expectations. Nvidia’s performance is particularly critical as it represents about 6.67 per cent of the total weighting in the S&P 500. A significant drop in its shares could weigh heavily on the index and dampen overall market momentum as the AI craze might be slowing down.

Looking ahead, if the market continues its downward trajectory, the first notable support can be found at the 50 per cent Fibonacci level, approximately at 5,532.22. This level aligns closely with the 20-day Exponential Moving Average (EMA), suggesting a stronger support zone. However, in a more bearish scenario where the index breaks below this level, the next significant support is at the 38.2 per cent Fibonacci level, at around 5,395.66 points. This level is expected to converge with the 100-day EMA, indicating robust support that could potentially halt further declines.

Reports on the US economy are expected to play pivotal roles in shaping market movements. Should these data points surprise the market with better-than-expected results, they could bolster market sentiment and set the stage for the S&P 500 to challenge its previous all-time high at 5,669.67. A decisive break above this level, followed by a successful retest, would signal strong bullish momentum.

Conversely, if these data merely meet expectations or fall short, we may witness a period of consolidation with the index gradually drifting lower to test the aforementioned support levels. The Relative Strength Index (RSI) currently shows the market in a neutral position, without any clear overbought or oversold conditions. Therefore, any sharp decline could present long-term investors with a potential buying opportunity.

The writer is equities specialist at Phillip Securities