Both the S&P and NASDAQ indices are approaching record closing highs. The S&P is currently up by 37 points, equivalent to around 0.60%, at 6634. It recently hit a new intraday high of 6636.08.
Technically, the index is experiencing a steady upward trajectory with moderate corrections near Fibonacci levels. From April 30 to May 19, the index bounced back after retracing to its 38.2% level. A subsequent move between May 23 and June 11 also corrected close to the 38.2% retracement and the 200-hour moving average before resuming upward.
Recent Market Movement
The latest upward movement began on June 23 and culminated on July 15. The following dip did not reach the 38.2% retracement at 6164.97 but found support around the July 7 low at 6201.51. This suggests increased buyer interest at higher levels.
Today’s new high underlines sustained bullish momentum, although technically the index is now overbought. The trend remains strong as long as the price is above key supports: 50-hour moving average at 6277.55 and 100-hour moving average at 6252.80. A fall below these averages could indicate a potential correction, but for now, the upward trend continues.
We agree with the analysis that fighting this upward trend is a losing proposition. With the CBOE Volatility Index (VIX) recently trading at lows not seen since before the pandemic, near the 12-13 level, buying call options on the SPX or SPY provides a cost-effective way to capture further gains. The current lack of market fear makes these bullish bets relatively cheap.
Trading Strategy
For traders seeking to generate income, selling out-of-the-money put credit spreads remains a viable strategy. This approach profits from the upward drift, time decay, and stable volatility. With recent reports showing US inflation cooled to 3.3% in May, the market is pricing in a higher probability of a Federal Reserve rate cut later this year, which provides a strong tailwind for equities.
Historically, sustained moves to new highs after a period of consolidation often have more room to run than anticipated. We are treating the current market like the breakout seen in late 2020, which ran for months with only shallow pullbacks. Therefore, we are maintaining long positions in E-mini S&P 500 futures contracts, using a trailing stop to lock in gains.
Our discipline will be guided by the technical levels mentioned by the author. A firm break below the 100-hour moving average would signal a shift in short-term momentum, prompting us to reduce our exposure and take profits. Until that happens, the prudent response is to stay long and let the market’s strength work for us.
