On the daily chart below, we can see that the S&P 500 keeps getting rejected at the 4200 resistance zone although maintaining a bullish bias. The current weakness may be due to the “sell the fact” trade we mentioned in the beginning of the week, where the S&P 500 was expected to pull back as traders take profit from the rally into the debt ceiling deal that was reached over the weekend. Now that we have finally got rid of that risk, we can focus solely on the economic data .
Yesterday, we got a big beat in US Job Openings which briefly weakened the S&P 500 as rate hike odds jumped to 70%. Soon after though, some Fed officials hinted that they may want to skip the June hike to buy time to see more data, and the S&P 500 erased the losses from the Job Openings release. It’s likely that the market will anyway price in a rate hike in June if the NFP and CPI reports come in hot.
S&P 500 Technical Analysis
In the 4 hour chart below, we can see that the price has come into the key 4175 level after the Job Openings report where it bounced soon after as Fed officials hinted to a June pause. If we look left, we can see that the S&P 500 has been basically rangebound for a long time due to lots of uncertainty on the future of the economy.
The next data to watch is the US Jobless Claims the ISM Manufacturing PMI today. Strong data may not do much as the Fed officials should take into consideration only the NFP and CPI reports given their comments yesterday. Weak data though, can be both good and bad at this point. Will the market rally on the expectations of no more rate hikes or fall on the fears of recession? The technicals should help in this case.
In the 1 hour chart below, we can see that we have some significant levels where the S&P 500 reacted from this week. If the price breaks above the 4207 level, we can expect the buyers to extend the rally towards the 4243 high and target a breakout. For the sellers, it may be better to wait for a break below the 4175 level to then jump onboard and target the 4120 support.
The NFP report tomorrow will be a big one. Good data accompanied by a beat in average hourly earnings should weigh on the S&P 500 as the market might start to really worry about a wage price spiral. Good data with a miss in average hourly earnings may be good though for the S&P 500 and take it to new highs. Bad data should be just bad, but it wouldn’t be the first time that we see the market rally on less rates hikes expectations, so keep an eye on the technicals to help you navigate the price action.
