S&P and Nasdaq rebound after support test, near key moving averages

The US stock market indexes are pushing higher after buyers stepped in at important support levels during Wednesday's drop. While the bounce is positive, both the S&P 500 and the Nasdaq now sit near their 100-hour and 200-hour moving averages. These levels will decide if buyers can regain more influence.

Following four straight losing sessions, the major US equity benchmarks are climbing even as the economic picture remains far from perfect. The latest consumer price index data indicated that inflationary pressures remain elevated, and the University of Michigan's inflation expectations gave the Federal Reserve another reason to stay cautious.

Traders now estimate roughly a 90% likelihood of the Fed raising rates. Typically, rising inflation expectations and a greater chance of tighter policy act as negatives for equities. However, markets do not trend in one direction. After four days of selling, with the S&P and Nasdaq both drawing buyers at key technical support levels, the sellers may be losing steam as short positions are covered and dips are bought.

On a technical basis, the US stock indices are grinding higher after buyers appeared at important support during the prior session's drop. The recovery is promising, but the S&P and Nasdaq still have ground to cover before buyers gain greater control.

The S&P is currently testing its 100-hour moving average at 7,677.32, with the 200-hour moving average slightly higher at 7,699.49. A sustained climb above both would be a bullish signal and shift focus toward 7,711.48. Breaking past that point would pave the way for additional gains toward the all-time high of 7,816.70.

Should buyers fail to push above the hourly moving averages, the bounce could lose strength. On the downside, the prior resistance zone between 7,577.92 and 7,617.37 has turned into support. Buyers defended that area on Wednesday, making it the critical level to watch. Holding above keeps buyers alive; a break below would give sellers the upper hand again.

The Nasdaq has already moved above its 100-hour moving average at 26,276 and its 200-hour moving average at 26,357. This gives buyers a short-term edge, but they need to keep the index above those marks. Staying above would target 26,392.74, then 26,676.31 and 26,856.24.

Wednesday's decline found a floor near the rising 100-day moving average and swing support around 25,964. That area is the key downside risk level for Nasdaq bulls. A drop below would weaken the technical setup and embolden sellers.

The technical takeaway is that buyers have held at support and are now making a move. Still, rising above a moving average is just the first step. Holding above confirms the move. If both indexes can stay above their 100- and 200-hour moving averages, buyers can continue to push higher. If not, sellers will get another chance to drive prices back toward Wednesday's support levels.

In short, buyers have taken a stand after four straight down days, but the bounce still needs validation. A sustained move above the 100- and 200-hour moving averages would reinforce the bullish view and allow the squeeze to continue. If the indexes stall at those levels, sellers could use them as resistance and aim for Wednesday's support again.