The S&P500 has been on an uptrend for 2 months now, which got amplified by the miss in the US CPI in November and unleashed a FOMO type rally out of it.
This “bear market rally” recently run into a strong technical year-long trendline and got some news against the narrative that supported the rally. This narrative was based on bad economic data in hope of a less aggressive Fed and earlier pause in their tightening cycle.
S&P500 Awaiting Key US Data
Tuesday: US CPI.
Wednesday: FOMC Policy Decision
We saw the uptick in the unemployment rate, the US Manufacturing PMI in free fall and the Fed signalling a slower pace of hikes beginning in December with a 50 bps move instead of 75 bps that they adopted for four consecutive times.
Finally, the US CPI report in November surprisingly missed expectations and prompted the market to expect an earlier pause from the Fed as the recessionary signals from the leading indicators may be finally showing signs in the lagging ones.
Recently though, the market got hit by economic data that show a resilience in the economy. In fact, after the huge intraday rally caused by a less hawkish than expected Fed Chair Powell speech, the US NFP report surprised beating expectations on jobs created and on the inflationary side higher than expected wages with previous figures revised upwards.
Some days later the ISM Services PMI beat expectations with prices paid sub-index remaining high. Finally, the US PPI report beat expectations and may make the market to err on the defensive ahead of the CPI report on Tuesday. Below you can see all the catalysts in the 1-hour S&P500 Futures chart.
S&P500 Technical Analysis
Recent two weeks of price action and catalysts on the S&P500 on tradingview.com
On the technical side the price has run into a year-long downward trendline that acted as resistance and started a fall breaking the 2 month-long upward trendline as the risk sentiment soured after the NFP and ISM data. After rebounding from the support in the 3920-3940 area, the price retested the broken trendline and got rejected as the US PPI data beat expectations.
Looking at the daily chart below we can see that the 3920-3940 area is also the neckline of the head and shoulders pattern and a breakout to the downside may see further sell-off, but we may need to wait for the US CPI and FOMC to have a clearer picture.
Daily chart of the S&P500 on tradingview.com
If the two risk events come out on the hawkish side, then we will most likely see the price breaking down and resuming the downtrend and at this point waving goodbye to the hoped Santa Claus rally.
Otherwise, in case the US CPI report again misses expectations and the FOMC policy decision comes out as expected or even on the less hawkish side, then we may see the price rally again and possibly reach the 4320 level.
