US 500 - Will Q2 Earnings, Inflation and Fed Warsh Shift SentimeUS 500 IndexPEPPERSTONE:US500PepperstoneAfter riding the wild swings driven by shifting AI hype and sky high valuations, then the escalation of tensions in the Middle East between the US and Iran, the focus for US 500 traders this week may shift back for a period to more event driven dynamics. Q2 earnings season started last Thursday when PepsiCo reported, but it gets into full swing this week with the major US banks, such as Bank of America, JP Morgan, Citigroup, Goldman Sachs and Morgan Stanley reporting on Tuesday and Wednesday, then shifts to a tech focus with TSMC, the world’s largest manufacturer of advanced AI chips and a key supplier to important US 500 constituents NVIDIA, Apple, AMD and Broadcom, reporting before the open on Thursday, and then Netflix reporting after the close. Q2 performance may take on a greater emphasis this time around as traders want to see if the current stretched valuations are justified and whether management flag any cost or future revenue concerns created by the on-going Iran conflict. Not only that, but traders will also receive the outcome of the latest US inflation readings, with consumer inflation (CPI) due on Tuesday at 1330 BST and then factory gate inflation (PPI), due at the same time on Wednesday. While market expectations for a Fed rate hike at their meeting in late July may have reduced, the jarring impact of a resumption of hostilities in the Middle East, have seen rate hike expectations for a move later in the year spike again, something which has weighed on US 500 prices. This topic is something that Fed Chair Kevin Warsh may discuss in his first testimony to Congress which commences at 1500 BST on Tuesday. Looking forward, the US 500 has dropped 0.6% from 7560 to 7530 at the start of the week as traders respond with caution to conflicting reports on the closure of the Strait of Hormuz to oil shipping and prepare for the possible volatile week ahead. What happens next could be influenced by shifting event driven sentiment and the response to the latest technical outlook, outlined below. Technical Update: Decision Making Process? Since the US 500 index posted its current all-time high of 7625 on June 2nd, more balanced themes have dominated. This has been reflected by a period of sideways activity, as price strength has been met by selling pressure to turn activity lower, only for buyers to emerge and reverse price weakness back to the upside. What is particularly interesting about this activity, which suggests more balanced sentiment themes, is that the June price highs are at lower levels each time, while recent lows have been at a higher levels each time. In this type of environment, a closing break above the latest failure high, or below the recent correction low is usually required to confirm which side has been able to come out on top and establish a more sustained price move in the direction of the eventual price break. Potential Support Levels: If the current sideways activity is to be resolved to the downside in a negative fashion, traders may be focused on the June 26th last correction low of 7300. Closing breaks below 7300 might be required to suggest downside momentum is emerging again, with risks of moves to lower levels. Closing breaks below 7300 could trigger a deeper retracement of the March 31st to June 2nd advance, with scope toward 7208, equal to the 38.2% Fibonacci retracement and possibly then 7106, the April 29th low. Potential Resistance Levels: Of course, it is equally possible buyers begin to gain the upper hand, resulting in a more extended phase of price strength. If this is the case, it may be closing breaks above the latest failure high posted on June 15th at 7583 that is required to suggest it. If the 7583 level is broken on a closing basis, it could lead to further price strength toward 7625, which is the June 2nd upside extreme, possibly even 7774, a level equal to the 38.2% Fibonacci extension. The material provided here has not been prepared accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research, we will not seek to take any advantage before providing it to our clients. Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. 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