US 500 – A Pivotal Trading Period to Start Q3US 500 IndexPEPPERSTONE:US500PepperstoneThe US 500 starts the new week at a pivotal moment, rocked over the previous 5 trading days by the latest sell off in AI stocks which according to Bank of America led to net outflows from US equity funds in the week ending June 24th for the first time in 3 months (Bloomberg), and by a resumption of attacks by the US and Iran on each other that threatened the fragile stability in the region. These events saw the index open on Monday 22nd June at 7485 and end the week 1.9% lower at 7345. Today’s price action has been more constructive, with US 500 traders reacting positively to news reports released on Sunday that the US and Iran had agreed to stop attacking each other and are likely to resume technical talks on Tuesday aimed at bringing an official end to the war. This has seen prices move briefly up to a high of 7404, before settling back to trade +0.65% at 7393 at the time of writing (0700 BST). However, it is possibly too early to decide whether this move is sustainable given the important events packed into a week shortened by the US Independence Day holiday on Friday. Looking forward, the outcome of Tuesday’s peace talks between the US-Iran may grab headlines, but on Wednesday the focus could shift to comments made by Federal Reserve Chair Kevin Warsh when he speaks at 1400 BST from a central bank event organised by the ECB in Sintra, Portugal. With traders nervous about inflation and rate hikes, the direction of the US 500 is likely to remain sensitive to any updates that he makes on these topics. Then on Thursday, the latest US non-farm payrolls report is due for release at 1330 BST, and it could be worth monitoring whether the headline jobs number remains resilient, and if the unemployment rate remains around 4.3%, which could see market expectations for a Federal Reserve rate hike on July 29th increase, a potential negative for sentiment toward the US 500. Or, if there are signs of weakness in the headline and the unemployment rate climbs, something which could see rate hike expectations put on hold until later in the year, a possible positive for the direction of the US 500. With so much to absorb in a short period, there could be potential for extra price volatility in the US 500 to start Q3! Technical Update: Weak Test of June Highs in Place? Within technical analysis, an uptrend is defined by higher price highs and higher price lows, where a setback after a new recovery high is followed by buyers re‑emerging and generating enough strength to break and close above the previous high. In this type of price behaviour, traders anticipate continued price strength to maintain the positive momentum. However, when a phase of strength fails to overcome the previous high, it is often viewed as a ‘weak test’ of that upside extreme, especially if it is followed by fresh price weakness. In the US 500 index, as the chart above shows, strength into the June 15th high failed below the June 2nd extreme at 7625, followed by the latest price decline. While this doesn’t guarantee further weakness, traders may look to define key support and resistance levels that could determine whether a more extended correction is possible, or if the weakness proves limited before fresh upside returns. Potential Support Levels: If the recent price activity is developing into a ‘weak test’, the support focus often turns to the last correction low of the advance. For the US 500 index, this looks on the chart to be 7299, which is the June 11th session low and rally point. Closing breaks below 7299 could trigger a deeper retracement of the March 31st to June 2nd advance, with scope toward 7208, a level equal to the 38.2% Fibonacci retracement and potentially then 7106, the April 29th low. Potential Resistance Levels: While support at 7299 remains intact attempts at price strength are still possible. If this is the case, the initial resistance level could stand at 7446, which represents the current price point of the declining Bollinger mid‑average. If prices were to break above 7446 on a closing basis, attention may turn toward 7583, which is the June 15th high, and if this were also to give way, risks could then shift back toward the June 2nd upside extreme at 7625. 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. 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