July became the most successful month for S&P 500 from November 2020: the growth has increased by 9% and the upward rebound from the annual minimum of June 16 on the level 3640 has already surpassed 13%. Nevertheless, almost all major media see this strong movement as a rebound and not as an attempt to break the downtrend of this year.
Growth was supported by relatively good results of the reporting season for the 2nd quarter (or, at least, not so bad, as some market participants had been afraid). However, the period with the biggest number of report releases is coming to an end and in the future, there won’t be any support for stock indices.
Oddly enough, the worsening macro statistics of the USA (and already in all other countries) become the catalyst for the growing S&P 500. The motto “the worse, the better” became relevant again for the stock market: the worse is current economic data, the more possible the refusal of central banks to continue tightening monetary policy, and the better for the prices of financial assets.
Today we can check the work of this principle again during the appearance of statistics on the U.S. labor market for July. The labor market is still almost the last indicator of economic health that hasn't been demonstrating the obvious worsening of the situation. However, now it is good data that can most likely lead to a fall in the market, and bad data — to growth.
If the upward leap will lead to the breakdown of level 4200, the point of 4300 will be strong resistance. Considering that the RSI indicator has already reached the zone of overbought and turned downward, the likelihood of a fall in the S&P 500 in the future seems very high. It is quite possible that after today's statistics on the labor market we will see the final upward leap of the S&P 500, where the traders will be actively fixing the profit and the market will move to decrease.
Following trade strategies may be suggested:
Sell S&P 500 during the rise in the range of 4200-4250. Take profit 1 — 4000. Take profit 2 — 3900. Stop-Loss — 4300.
Also, traders can use Trailing Stop instead of fixed Stop-Loss at their disposal.