FUNDAMENTAL
OVERVIEW
The S&P 500 has
been inversely correlated with oil prices recently as the break above the psychological
$100 dollars a barrel triggered a hawkish repricing across the board and
increased inflation and growth concerns. It looks like we
reached the pain threshold for the market, and a more hawkish Fed could just
exacerbate the losses.
Chart: S&P 500 vs WTI crude oil (blue – inverted)
The focus today
will be on the FOMC decision. The consensus is for the Fed to hike by 25 bps,
with potentially one or two dissenters voting for a hold. At this meeting, we
get the Summary of Economic Projections (SEP) and the Dot Plot.
Traders will be
focused on the latter where the Fed is expected to project two more rate hikes,
one in 2026 and one in 2027. This would still be below the current market
pricing of three more rate hikes by the end of 2027. Fed Chair Warsh is not
expected to offer much in terms of forward guidance but just repeat his Jackson Hole message.
If the Fed signals
three or more further hikes, that would likely be taken as a hawkish surprise
and could trigger a selloff in the S&P 500. Conversely, a forecast
suggesting just one or two more rate hikes could be taken as dovish and could lead
to a relief rally in the short-term.
The other major
focus will be developments in the Middle East, as oil prices have been the key
driver of markets recently, so any de-escalation in the Middle East could push
oil prices lower and lead to a dovish repricing, which could ultimately support
the S&P 500.
For now, I think
the macro backdrop will continue to limit the upside and weigh on the market unless
we get a de-escalation in the Middle East or a dovish Fed.
S&P 500 TECHNICAL ANALYSIS – DAILY TIMEFRAME
On
the daily chart, we can see that
the S&P 500 (CFD tracking E-mini futures) is trading at the 7,600 support
ahead of the FOMC decision. The buyers will likely step in around these levels
with a defined risk below the support to position for a rally into new record
highs. The sellers, on the other hand, will want to see the price breaking
lower to pile in for a drop into the 7,300 level next.
S&P 500
TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On
the 4 hour chart, we have a
downward trendline defining the bearish structure. If we get a pullback into
the trendline, we can expect the sellers to lean on the trendline with a
defined risk above it to target a break below the support and new lows. The
buyers, on the other hand, will look for a break higher to increase the bullish
bets into the next trendline around the 7,700 level.
S&P 500 TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can
see the price is breaking above the minor trendline that was defining the
bearish momentum on this timeframe. It could be a signal of a bigger pullback into
the next trendline but from a risk management perspective, it would be better
to wait for the FOMC decision before committing to new positions. The red lines
define the average daily range for today.
UPCOMING CATALYSTS
Today, we have the
FOMC rate decision. Tomorrow, we get the US Jobless Claims figures. Traders
will also keep a close eye on developments in the Middle East.
This article was written by Giuseppe Dellamotta at investinglive.com.