It looks like the more hawkish than expected FOMC Dot Plot last
week was kind of a wakeup call for the market as it’s been selling off with
almost no pullback ever since. The resilience in the economy is keeping the Fed
on the hawkish camp as it wants to see more weakness in the data, especially on
the labour market front. We’ve seen a huge rally since the lows back in October
2022 as the market continued to see a soft landing but even Fed Chair Powell said
that it’s not his base case, although they are aiming for it. With so many
bearish drivers that accumulated throughout the first half of 2023, the market
might be at risk of a major fall now.
S&P 500 Technical
Analysis – Daily Timeframe
S&P 500 Daily
On the daily chart, we can see that the S&P 500
bounced almost perfectly on the key trendline
yesterday after another selloff at the start of the trading session. The market
is now a bit overstretched on the downside as depicted by the distance from the
blue 8 moving average. In such
instances, we can generally see a pullback into the moving average or some
consolidation before the next impulse. The buyers should start to pile in here with a defined risk below the trendline to position for a rally into the highs.
S&P 500 Technical
Analysis – 4 hour Timeframe
S&P 500 4 hour
On the 4 hour chart, we can see that we have a good
resistance zone at
the previous support turned resistance around
the 4331 level. In fact, that’s where we will have the confluence of the
38.2% Fibonacci retracement level,
the red 21 moving average and the daily blue 8 moving average. That’s where we
can expect the sellers to pile in again with a defined risk above the
resistance to position for a break below the major trendline. The buyers, on
the other hand, will want to see the price breaking above the resistance zone
to position for a rally into the next trendline around the 4450 level.
S&P 500 Technical
Analysis – 1 hour Timeframe
S&P 500 1 hour
On the 1 hour chart, we can see that the
price has been diverging with
the MACD right
when it’s been falling into the key trendline. This is generally a sign of
weakening momentum often followed by pullbacks or reversals. In this case, it
raises the chances of seeing a pullback into the resistance zone. Moreover, we
can see that we have even more confluence on this timeframe as we have another
minor trendline and the 38.2% Fibonacci retracement level of the entire selloff
since the FOMC meeting.
Upcoming Events
Today the main event will be the US Jobless Claims
report. At this point, looks like there’s not much difference if it’s strong or
weak data as the former would keep the Fed hawkish and even raise the risk of
higher rates, while the latter might point to a recession. Nonetheless, the
last time the market rallied on weak data as it decreased the risk of further
tightening and brought down Treasury yields. Tomorrow, we will see the latest
US PCE data which is unlikely to change much in terms of market pricing unless
we see some big surprises.