S&P 500: Technical Take Heading into FOMC
- U.S. markets faring better than other global indices, but remain vulnerable
- S&P 500 bouncing towards resistance
- FOMC meeting today, will wait on market reaction for further guidance
So far, the U.S. markets continue to hold up relatively well compared to the carnage we have seen in other parts of the globe, which shouldn’t come as a surprise given how strong the S&P 500 has been comparatively in both the short and long-term.
The divergence we made note of earlier last week between the major U.S. indices and the divergences within the S&P, itself, proved to be valuable warning signs of this recent decline, and indicate further weakness ahead.
The channel dating back to the right shoulder of the small H&S pattern created over 2100 was keeping the market steered lower on the short-term chart. The bounce in the early cash session yesterday was rejected at the upper parallel, while the morning sell-off halted at the lower.
So far, in overnight/early morning trade this channel has been broken to the upside, and challenging resistance created yesterday at 2082. A break above there will quickly bring into focus the all-important resistance level of 2085, and is viewed as a critical ceiling if the short-term bias is to remain lower. A strong break above will bring this view under fire. On the daily chart, the S&P is trading below a trend-line off the Feb 11 low, we will want to keep an eye on that as well; sustained trade below will validate its break.
Support comes in at yesterday’s low of 2063, then a series of inflection points created during May in the 2061/57 vicinity quickly comes into focus. We had 2070/72 as a support level heading into yesterday, but the market failed to show much interest there, however, we will still keep it on our radar should the market start abiding by it again.
As discussed in yesterday’s commentary: The decline leading up to this short-term bounce pushed one of our favorite short-term oversold/overbought metrics – % of S&P 500 stocks above the 10-day moving average – to its worst levels since the Feb low, but still has room to go before flashing an extreme oversold reading. Yesterday, it notched higher to 24% from 22%; below 20% and 10% even more-so, is considered to be an extreme. Even then, it’s best use is to identify market conditions which are conducive for a bounce (or sell-off as we showed last week), not so much as an exact timing tool. At any rate, it’s oversold, but not in ‘bounce-is-imminent’ oversold territory. So for now, we will keep an eye on it for further indications should it become extremely oversold soon.
Today is the second day of the FOMC meeting, with 18:00 GMT slated as the time of release for the decision, policy statement, and forward guidance on the anticipated path for rates by Fed officials (dot-plot). No change in rates are expected, so the statement and dot-plot will be the trigger for volatility. Once the dust settles, we will see how market fluctuations impact the current chart-scape and go from there. Also, keep in mind two other central banks meet tomorrow – the BoJ and BoE.
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---Written by Paul Robinson, Market Analyst
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.