S&P 500 Faces Uncertainty Amid Blockbuster Jobs Report, Chinese Balloon Incident

Movements of the since the Fed’s interest on Feb. 1 indicate that despite the late weekly selling, the index still managed to close last week with a 1.6% gain.

Thursday’s bumpy trading pushed the S&P 500 to 4195.49 before it then lost some gains; this was followed by a selling spree again on Friday from the day’s high at 4182.40, resulting in the formation of an exhaustion candle.

Friday’s monster added another blow to bulls, further accelerating a late-week selloff. While the U.S. economy was supposed to add 185,000 jobs, the report showed it added 517,000.

Monday, the S&P 500 could get a confirmation candle for this exhaustion candle, formed on Friday, if not hold the immediate support as it was trading below the significant support at 4141.83 after a weekly gap-down opening.

Undoubtedly, some analysts feel the further direction of the S&P 500 index still looks bullish, as the current selling spree could be a temporary phenomenon.

But I find the technical formations in the daily chart make it evident that this is not the case, and evolving geopolitical events could play a decisive role in defining the further direction for equity markets.

The balloon episode has already further strained tense relations, prompting Washington to cancel a planned visit over the weekend to Beijing by Secretary of State Antony Blinken.

This incident could lead to a surge in supply bans like we saw during the tariff trade war between the United States and China in 2018-19, which pushed the S&P 500 to hit a low at 2342 on Dec. 24, 2018.

S&P 500 Daily Chart

S&P 500 Daily Chart

No doubt, if the S&P 500 does not hold significant support at 9 DMA, which is at 4086 in today’s session, bears could turn more aggressive and try to break the next support at 26 DMA soon.

In such a scenario, bearish sentiment could explode enough to push the S&P 500 to hit 200 DMA support, which is at 3948 this week.

Disclaimer: The author of this analysis does not have any positions in the S&P 500 index. Readers are advised to take any position at their own risk.