Why $3000 is the Level to Watch for in the S&P 500

The
S&P 500 is one of the most-closely watched indices in the world. This is
because it is made up of the biggest public companies in the United States. In
terms of variety, the index is more diverse than the other indices like the
Dow, which is made up of just 30 companies.

Yesterday,
the S&P 500 gained by 25.71 points to end the day at 2933.68. This was the
highest level on record. It was also the highest level it has been since
September last year. YTD, the index has gained by  17%, which is the best start of the year
since 1987. The gains yesterday helped to cap a 145-day stretch without a
record.

There
are a number of reasons for the current rally. First, the Federal Reserve’s
decision to pause on more interest rates has brought more confidence to the
market. Previously, the Federal Reserve was expected to do at least two
interest rates hikes this year. Instead, the bank decided that it will not have
any hikes.

Second,
the ongoing trade talks between the US and China have brought more confidence.
Previously, the US had threatened more tariffs on Chinese goods, which would
have prompted retaliation. Therefore, with a deal expected to be sealed soon,
there is a likelihood that the trade tensions will ease a bit. However, traders
should not rule out another trade war between United States and Europe. This is
after the EU placed tariffs on a number of American goods recently.

Third,
and most importantly, corporate earnings in the United States have been
relatively strong. In fact, 79% of all companies that have released their
earnings have beaten the consensus estimates. Yesterday, the market was
propelled by companies like Twitter, United Technologies, and Lockheed Martin.
In the previous quarter, the number of countries that beat was 69%.

Fourth,
there have been a positive sentiment in the market about IPOs. YTD, a number of
high-flying companies have gone public. These are Instagram, Lyft, and Zoom.
Other companies like Uber and Palantir Technologies are expected to go public
this quarter. This has helped improve the sentiment. It has also helped
investors shaken-off the high valuations of technology companies.

As
shown below, the S&P 500 index has managed to recover from the sharp
decline experienced in the fourth quarter. As it has done this, it has formed a
V-shape. At yesterday’s close, the index was along the important resistance
level. The price is above the 21-day and 42-day smoothed moving averages. The
RSI has remained above the overbought level of 70. In the coming days, the
index will likely remain along these levels. If it moves higher, the next
support is likely be on the psychologically-important level of $3000.

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