Market Intelligence News

Weekly S&P500 Technical Analysis

After the Fed delivered a more
hawkish than expected stance, the market sold off pretty
heavily. The Fed once again had to repeat to the market that they are solely
focused on bringing inflation back to their 2% target and they are ready to
go above market expectations and risk an overtightening to achieve that.

They also complained once again
about the “extremely
tight labour market” in a hint that they want to see unemployment
picking up before having some confidence in loosening their hawkish stance.

The risk now is that once
unemployment starts to rise, the domino effect will take hold and the “mild
recession” that the economists expect will turn into an ugly one.

More recently, the
China reopening may add to inflationary pressures in the
short-term and
increase the probabilities of the Fed going even higher than their projected
terminal rate of 5.1%. For all of the above reasons the fundamental outlook is
skewed to the downside and the bear market might have more legs before finding
a bottom.

S&P500 Technical Analysis

On the technical side, as you can
see in the chart above, after the sell off out of the FOMC meeting and the
break of the strong support area in the 3920-3940 region, the
price went into consolidation as the lower volume of the holidays and a lack of
notable catalysts provided a rangebound price action.

The consolidation is depicted by
the symmetrical
triangle pattern. The price may breakout of the triangle and offer
2 different scenarios:

1) Run to the upside and break
the 3920-3940 resistance zone, with the big blue downward trendline as a possible ultimate target.

2) Run to the 3920-3940
resistance zone and get rejected, resuming the downward trend and ultimately
target the October low at 3506.

Zooming out to the daily chart,
we can see how the big blue downward trendline provided support to the bear
market. The price couldn’t break it even after the 2nd
consecutive miss in the CPI
report and got ultimately smacked down by the more hawkish than expected FOMC

The risk defining levels are
clearly the blue trendline, the 3920-3940 resistance zone and the October low at
3506. Given
the bearish outlook the price is more likely to head downwards, but if that
wasn’t the case and the price managed to break the trendline, then the 4300
swing level would be eyed.

This article was written by ForexLive at

Leave a Reply

Your email address will not be published. Required fields are marked *