While China eases, it's still too early for the U.S.

After testing $4,900 yesterday, the SPX retreated slightly lower. Currently, it trades near $4,870, and we keep monitoring the resistance at $4,900 and support at $4,800. We are also paying close attention to the RSI, which broke above 70 points on the daily graph; the invalidation of the breakout will raise a slight concern, and the same will apply to the spike in the VIX. Besides all these things, we will keep an eye on the Chinese markets, which saw a ban on short-selling being imposed last week and which failed to halt the crashing market. That prompted regulators to announce new stimulus measures and cut the reserve requirement ratio by 50 basis points (effective from 5th February 2024). Due to these major changes, we have changed our stance on the Chinese equity markets and are no longer bearish. However, it is still yet to see whether these measures will have a lasting effect (remember, plenty of other measures were implemented in the past few years, failing to halt the multi-year decline). Despite all this optimism and similar expectations among investors for the easing in the U.S., we remain highly cautious (and skeptical that the FED will cut rates in the next two meetings).

Illustration 1.01

Illustration 1.01 shows the daily chart of the SPX’s RSI. The yellow arrow indicates a bullish breakout above 70 points.

Illustration 1.02

The image above displays three major Chinese indices on the daily time frame. It can be observed that volume began to quickly increase alongside equities following the announcement of the boost to the economy.

Technical analysis gauge
Daily time frame = Slightly bullish
Weekly time frame = Neutral
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.

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DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.