Yesterday, the US ISM Services PMI beat expectations by a big margin and caused a selloff in the S&P 500. The market pricing for future interest rates expectations turned a little bit more hawkish with basically a 50/50 chance of another hike in November and less rates cuts in 2024. Last week we got a “bad news is good news” type of reaction, while yesterday it was the complete opposite as “good news was bad news”. It looks like the market is still trading on interest rates expectations.
S&P 500 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the breakout above the 4494 resistance failed as the S&P 500 rolled over and extended the drop following the surprising US data. The price is now testing the red 21 moving average where we should find some buyers looking for another extension to the upside. Right now, though, the sellers are in control and the price will need to rally back above the resistance to change the bearish bias.
S&P 500 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we had a strong support around the 4494 level as there was also the confluence with the 38.2% Fibonacci retracement level. Unfortunately, the price broke through it with ease, which might be a signal that the bearish momentum is strong, and we might see more lower lows ahead. The target for the sellers now is the support at 4324.
S&P 500 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we had a divergence with the MACD right after the breakout. This is generally a sign of weakening momentum often followed by pullbacks or reversals. The pullback should have ended at the support in a classic “break and retest” pattern, but given that the price broke below it, we got a confirmation of a reversal.
From a risk management perspective, the sellers may want to wait for the price to pull back into the downward trendline where we have also the confluence of the previous support turned resistance and the red 21 moving average. This is where the sellers should pile in with a defined risk above the trendline to target the 4324 support. The buyers, on the other hand, will want to see the price breaking above the trendline and the 4494 level to invalidate the bearish setup and position for another rally into the highs.
Upcoming Events
Today we will have the last important US economic data for this week: the US Jobless Claims report. We saw just yesterday that the market doesn’t like strong US data as that raises the chances that the Fed might need to do more and eventually lead to a worse recession. So, if we get good data, we should see more weakness in the S&P 500, while bad data should provide a relief rally. At some point though, the market should start to worry about bad data as well.