Fundamental Overview
The S&P 500 has been on a steady decline since the last US CPI report on July 11th. In the first stages of the pullback, we’ve been seeing a rotation from big cap stocks into small cap stocks as the Russell 2000 displayed an opposite price action. Eventually, the bearish momentum picked up and we saw a more aggressive decline with the index falling by 5%.
A good argument has been that most of the moves we’ve been seeing were driven by deleveraging from strengthening Yen. Basically, the squeeze on the carry trades impacted all the other markets. Given the magnitude of the recent appreciation in the Yen and the correlation with many other markets, it looks like this could have been the reason indeed.
It will be interesting to see how things evolve in the next days and if this correlation finally fades now that the BoJ decision is in the rear-view mirror. It's already a good sign that despite some more yen strengthening this morning, the stock market held the gains. From a big picture perspective, nothing has changed as the market continues to expect at least two rate cuts by the end of the year and sees some chances of a back-to-back cut in November.
Today, we will also have the FOMC rate decision where the Fed is expected to keep rates steady and signal a rate cut in September. Overall, this should continue to support the soft-landing narrative and be positive for the general risk sentiment as the Fed is going to cut rates into resilient growth.
S&P 500 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the S&P 500 seems to be bottoming out at the major trendline around the 5435 level where we had also the 38.2% Fibonacci retracement level for confluence. The buyers stepped with a defined risk below the recent lows to position for a rally into a new all-time high. The sellers will need the price to break below the trendline and the 5430 level to increase the bearish bets into new lows.
S&P 500 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a strong resistance zone around the 5540 level where we can find the confluence of the previous swing low, the downward trendline and the 50% Fibonacci retracement level. This is where we can expect the sellers to step in with a defined risk above the resistance to position for a drop into new lows. The buyers, on the other hand, will want to see the price breaking higher to invalidate the bearish setup and increase the bullish bets into a new all-time high.
S&P 500 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we’ve been consolidating between the 5440 support and the 5540 resistance. The market participants might keep on playing the range for now, but a breakout on either side should lead to a strong and sustained move. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the US ADP, the US Employment Cost Index and the FOMC Policy Decision. Tomorrow, we get the latest US Jobless Claims figures and the US ISM Manufacturing PMI. Finally, on Friday, we conclude the week with the US NFP report.
