Market Gains Strengthen as Key Levels Hold


Simpler Trading Team

Jan 10th 2023  .  4 min read

Market Gains Strengthen as Key Levels Hold

Federal Reserve Chairman Jerome Powell gave a speech in Sweden at 9 a.m. Eastern time, just 30 minutes before the market opened. Many investors and traders were closely monitoring his comments regarding central bank independence. He stated, “Restoring price stability when inflation is high can require measures not popular in the short-term,” but did not offer much more insight beyond this. Initially, the S&P 500 futures were uncertain, with some indecision candles, but the lack of additional comments from the Chairman allowed the market to trend higher and open on a positive note.

As the opening bell sounded, one of the key levels to watch was the psychological barrier of 3,900, coinciding with the 21-day exponential moving average (EMA). The intersection of these two factors at the same level created a high-stakes situation where a break below 3,900 would have been bearish for the market, leaving the index exposed to further selling pressure. However, as this level was supported, buying volume increased, and the market began to move higher.

Market Participants Step In to Save the Day at a Critical Level

After a significant influx of buying pressure, the S&P 500 futures had to contend with another crucial level: the 50-day simple moving average (SMA) at 3,922. Not only did the index reach this level and break above it, but it also managed to hold above it for the rest of the trading session. Following the bounce off 3,900, a steady uptrend was established, driven by sustained buying volume, resulting in the market closing at the day’s high of 3,940. This level of 3,922 is crucial to watch in the coming sessions as it could act as a pivot point for the market to sustain or change its current trend.

A general principle in technical analysis is that if an index trades above its moving averages, it suggests an upward trend and vice versa. In just a couple of weeks of 2023, we have seen the market rally, and now holding above these moving averages confirms the trend’s strength. This is an essential sign for traders and investors to keep an eye on, as it can indicate the potential for upward market momentum.

Reading the Market’s Tea Leaves: How to Spot Signs of a Continued Upward Trend

For the upward trend to continue, the market will need to maintain its position above the psychological level, with the 21-day EMA at 3,900 and the 50-day SMA at 3,922. If these levels are breached, it could signal the end of this bullish trend. During Monday’s trading session, the market saw strong resistance at the level of 3,973, which could make the upside targets of 3,950, 3,972, and 4,000, all viable possibilities heading into the release of the U.S. Consumer Price Index (CPI) on Thursday at 8:30 a.m. Eastern. 

It is crucial to remember that the market’s behavior leading up to significant events, such as the release of the CPI, can be volatile and uncertain, making it difficult to predict a clear direction. Additionally, traders should also be aware that implied volatility is likely to be heightened in the days leading up to the release of the CPI numbers, making market movements more unpredictable. 

As traders and investors prepare to release the Consumer Price Index (CPI) on Thursday, keep an eye on key levels, such as the 21-day exponential moving average (EMA) at 3,900. While it is not certain, there is a strong possibility that the market may pull back to this level as traders and investors wait to release the CPI. If the 50-day simple moving average (SMA) breaks, the 21-day EMA at 3,900 would be a logical place for the market to consolidate before the big release. The market’s volatility ahead of the CPI release makes it hard to predict the direction, and it’s crucial to keep an eye on different indicators and key levels for proper market positioning.

Indexes United in Upward Climb

The Nasdaq and the S&P 500 were positive to close the session. The S&P 500 closed up 0.66%, gaining 25 points, while the Nasdaq closed up 0.94%, an increase of 100 points. The Dow Jones followed, closing up 0.58%, adding 193 points.