The S&P 500 broke above its all-time high trend line this week at the 4,000 level.
It’s a level I’ve discussed for months that opens up higher levels, not just for the index but for risk assets.
We’ve seen SPX500 hold above resistance turned support at 4,000 for three days.
Bulls had their work cut out on Wednesday after a 1.9% drop but managed a daily close above 4,000.
That’s the line in the sand between risk on and risk off.
As long as SPX is above 3,990, I like risk assets higher, which should translate to a weaker US dollar.
Key resistance for SPX500 is the monthly pivot at 4,140, followed by the August 2022 swing high at 4,300.
However, we know how quickly markets can change their mind.
So although we have a risk-on environment while SPX500 is above 3,990, things would turn bearish for risk assets following a daily close below that level.
That gives us a precise invalidation level, not only for SPX but for other assets as well.
For instance, the SPX500 tends to move inversely to the US Dollar Index (DXY), which moves opposite to a pair like EURUSD.
So a higher SPX could translate to a higher euro.
Alternatively, an SPX daily close back below 3,990 would be a bullish signal for the USD.