S&P 500 Bulls Undeterred by Hawkish Fed; Eyes on Slope Resistance
- Hawkish FOMC only causes only minor intra-day volatility, market snaps back
- Recent breakout might continue, but history hasn’t been kind to chasers
- A pair of top-side trend-lines could be problematic, bring in next way of weakness
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Yesterday, the FOMC was clearly hawkish, and with that the US dollar ripped while U.S. equities tanked (at least momentarily). The dip in stocks wasn’t really much of a “tank” as the S&P 500 fell only about 10 handles, it just felt like it in this low-volatility environment (VIX closed sub-10). Weakness was short-lived and met with buying no more than about 25-30 minutes after the Fed announcement, erasing all FOMC-induced losses and closing near the highs of the session.
Since breaking out to new record highs earlier this month it’s been a grind. It hasn’t been worth fighting from the short-side, but not all that fruitful for the longs either. The trading might not get much easier or 'exciting' until we see another bout of weakness like we had during July and August. Weak markets equal higher volatility, thus more wiggle room for trading opportunities.
Looking at how the market has acted in recent years after notching new record highs we might not have to wait too long for another spat of volatility. The S&P has had a propensity for punishing those who chased the market into record high territory (three occasions since May). It’s a ‘buy-the-dip’ market. Initial breakout buys may have worked, but the better entries have been when others were exiting into declines.
Where might the market stall and turn back lower? Not far ahead we have a couple of top-side trend-lines. The one line running over peaks back to March comes in around the 2515-mark, while the second one extending back to June isn’t until the 2525/30-area (depending upon timing of arrival). At those points we’ll pay especially close attention to price action and if it suggests we are in for another decline - even if it is only to be corrective in nature. A sharp rejection lower will be our cue. Short-term traders (intra-day to a few days) should at least benefit from this, and for those looking to ‘buy-the-dip’ another decent opportunity might present itself at a later time.
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S&P 500: Daily
---Written by Paul Robinson, Market Analyst
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