After edging up a modest 0.5% last week, the S&P futures were holding weekly losses of around 0.8% at the time of writing on Thursday. In other words, the S&P was trading near a two-week low, albeit only a tiny bit below its record high hit last week. So, as things stand, we are far from being in a full-blown bear market. The modest retreat could just turn out to be a temporary move before we see new highs, although a lot will now depend on incoming US data, company earnings, US election outcome and the growing risks of geopolitical tensions in the Middle East, which has arguably been the biggest drag on risk appetite this week. In the US, too, the Fed Chair Powell has talked down the chances of another outsized rate cut this week, with a couple of stronger-than-expected employment indicators supporting his view ahead of the official jobs report on Friday. With the long-term charts still in technically overbought territories, and given all these potentially market-moving events, the risks are tilted to the downside, in my opinion. But we haven’t seen a clear bearish reversal signal yet. Today, all eyes will be on the ISM services PMI. Israel’s potential response to Iran’s attacks could overshadow everything else. Why has the rally halted?As I noted previously, the stock market rally had reached severely overbought levels on the long-term charts and some profit-taking was long overdue, which we have partly witnessed so far this week. Sentiment has also been hit a little by other factors.The escalating conflict in the Middle East has restrained risk appetite all week. Investors have also been wary of taking on too much risk ahead of the release of key economic data from the US that may shed more light on the Fed’s rates decisions in the coming months. With Q3 earnings and US presidential election also upon us over the next two months, investors are evidently not in a hurry to push stocks higher, even if central banks and government are not only easing rates, but some are providing fresh stimulus. Optimism over central bank easing vs. growing geopolitical risksIndeed, last week it was a fresh wave of Chinese stimulus measures that supported risk sentiment, which came after the Fed cut rates more than expected. Today, the Bank of England Governor sent the pound slumping after saying that the UK central bank could be a “bit more aggressive” in cutting interest rates provided the news on inflation continued to be good. But optimism over rate cuts have been put on hold mainly due to heightened geopolitical risks this week. Israel still hasn’t responded to Iran’s missile barrage from Tuesday evening, and the world is on edge. The big concern is that if Israel goes after key Iranian assets, it could provoke a sharp reaction from Tehran, escalating the conflict. This could easily pull other countries into the mix and cause serious disruptions to global energy shipments. What to watch in US data calendar this weekToday, the US economic calendar is busier. Traders have shifted their focus to the US labour market for further clues on the direction of interest rates. Attention will be on US jobless claims data, as well as the employment component of the ISM services PMI. The manufacturing sector’s employment component was weaker than expected, yet this was offset by a stronger showing from JOLTS jobs opening data and the ADP private sector payrolls report, albeit the latter doesn’t have much predictive power for official payrolls data due on Friday. In September, non-farm employment is expected to have risen by just under 150K vs. 142K the month before, with the unemployment rate seen steady at 4.2%. If the data comes in around the expected figures, this will further reduce the odds of another 50 basis point rate cut from the Fed this year, after Chairman Powell talked back against expectations of aggressive cutting earlier this week. S&P technical analysis and trading ideasGiven the overall bullish trend on the S&P 500 and other US indices, dip-buying continues to remain the preferred trading strategy. But could that change if we see the breakdown of a key support area as highlighted on this S&P 500 futures chart:
