All eyes on the trend line

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The S&P 500 just had its biggest gain in over three weeks. Now, as the second quarter ends, traders might want to keep their eyes on a key level.

A trend line has run along the bottom of the index since it bottomed in early 2016. The S&P 500 came close to breaking the trend line a few times between late March and early May, but never closed below it multiple days in a row.

Well here we are once again at the end of another quarter. The line is about 100 points higher and once again buyers have stepped in to defend it. Is the trend your friend? Traders may find some reasons to think it is.

First, as most people know, the economic data remains strong. The Atlanta Federal Reserve’s fast-moving “GDPNow” estimate rose a full percentage point between late April and mid-June. (We’ll review the numbers more thoroughly next week before the key jobs report.) Earnings season is only a few weeks away, while the next interest rate hike is likely more than two months out. Take the recent strength of most earnings. Throw in the brighter economic outlook. Throw on top of that hopes of tax cuts giving another boost. Add that all together, and sentiment may be positive as quarterly numbers start trickling out in mid-July.

But, what about trade? What about tariffs? Just as “the trend is your friend,” another adage states that “bull markets climb a wall of worry.” In this case, the trade and global jitters may be providing those worries.

In conclusion, this isn’t a trade recommendation and everyone needs to do their own homework. But the S&P 500 continues to hold an apparent trend line as the economy improves. Meanwhile, the potentially positive catalyst of earnings season is just over the horizon.

S&P 500 with trend line and moving averages.
S&P 500 since early 2016 with trend line and moving averages.
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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.