FUNDAMENTAL
OVERVIEW
The S&P 500 has been mostly rangebound this month as the US-Iran crisis
brought back inflation and growth risks. This has also happened amid
overcrowded stock market positioning which has led to deleveraging across the
board.
The latest weakness seems to be more about hedging/deleveraging activity
ahead of tomorrow’s FOMC decision rather than fresh Middle East news. In fact,
the ceasefire is still intact, and the diplomatic efforts are ongoing (although
things can change on a dime).
The Fed is expected to hold interest rates steady but there might be one or
two dissenters voting for a rate hike at this meeting already. The forward
guidance will likely remain limited again under Fed Chair Warsh but based on
recent comments from policymakers, the pace of monthly inflation increases will
dictate the potential tightening pace.
If the situation in the Middle East remains calmer and the Fed delivers on
expectations without any hawkish surprise, then we might see a relief rally in
the short-term and the next legs will be driven by US-Iran developments and US inflation
releases.
S&P 500 TECHNICAL ANALYSIS – DAILY TIMEFRAME
On
the daily chart, we can see the S&P 500 has been mostly rangebound amid the US-Iran crisis and
broad-based deleveraging. The price is approaching the first key swing level at
7,357 that could act as support. We can expect the buyers to step in around
that level with a defined risk below it to position for a rally into new record
highs. The sellers, on the other hand, will look for a break to increase the
bearish bets into the major support zone around the 7,200 level.
S&P 500
TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On
the 4 hour chart, we have a
minor downward trendline defining the bearish momentum on this timeframe. If we
get a pullback, we can expect the sellers to lean on the trendline with a
defined risk above it to keep pushing into new lows. The buyers, on the other
hand, will look for a break to pile in for rally into new all-time highs.
S&P 500 TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as from a risk management perspective, the sellers
will have a better risk to reward setup around the trendline, while the buyers might
either wait for the 7,357 support or the break above the trendline. However, a
break below the recent low at 7,412 could see the sellers piling in to extend
the drop into the 7,357 level. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we have the US
Consumer Confidence report and Trump-Netanyahu meeting. Tomorrow, we have the
FOMC rate decision. On Thursday, we get the US PCE price index, the Advance Q2
GDP and the Jobless Claims figures. On Friday, we conclude the week with the US
Q2 Employment Cost Index. Traders will also keep monitoring US-Iran headlines.
This article was written by Giuseppe Dellamotta at investinglive.com.