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
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
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
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.