US inflation data could trigger S&P 500 pullback to $6,430

The S&P 500 (SPX) continues to trade within its medium-term ascending channel. However, for over a month, the index has failed to test its upper boundary, consistently hovering around lower support. Although a decisive breakout has yet to occur, there is a clear lack of enthusiasm among traders to buy at all-time highs. This persistent weakness increases the probability of a decline toward 6,430 and a potential break below this channel.

Technical indicators on the daily chart are flashing warning signs. A pronounced bearish divergence is evident, with the SPX moving upward and the RSI progressively decreasing from its peaks. Moreover, the narrowing of the Bollinger bands suggests reduced volatility in the US stock market. Yet, within the next ten days or so, this calm may well transition into amplified selling.

The US jobs report released on Friday fell far short of expectations. Only 22,000 new jobs were created in the American economy, and the unemployment rate climbed to a 4-year high. These results support the idea that the Federal Reserve should cut interest rates more than officials initially thought. Even though such a dovish pivot could ultimately stimulate inflows into equities, investors were not overly optimistic at first. This hesitancy likely stems from growing fears of stagflation—an economic slowdown occurring alongside high inflation.

Worries may be verified as soon as Thursday with the publication of August's CPI figures. A recent survey by Bloomberg predicts that the US Consumer Price Index (CPI) is set to rise from 2.7% to 2.9%, underscoring the mounting impact of President Donald Trump's import tariffs. The Fed is now confronted with a difficult task: risk a renewed spike in prices by supporting the labor market, or continue its unwavering commitment to fighting inflation. In this atmosphere of heightened uncertainty, demand for the leading stocks within the S&P 500 could diminish.

The following trading plan may come into play:

Sell SPX in the 6,500–6,600 range. Take profit: 6,430. Stop loss: 6,650.