Global equity bulls lingered nearby on Tuesday as market sentiment stabilized after last Friday’s Fed-induced sell-off. Stocks in Europe flashed green while US futures rallied on risk-on sentiment. Although investors seem to be digesting the Fed’s promise to tame rising inflation, a sense of caution still lingers in the air ahead of another busy week for financial markets.
Last Friday, the S&P 500 was beaten black on blue by a decidedly hawkish Jerome Powell. The S&P 500 collapsed like a house of cards after declaring that the Fed had no plans for a dovish turn and warning that economic growth could be hurt by higher interest rates. According to Bloomberg, traders are pricing in a 75 basis point rate hike in September with a 73% probability. It should be noted that higher interest rates affect corporate earnings and stock prices.
This could be another wild week for the S&P 500 as investors brace for Friday’s US jobs report. Markets expect the US economy to have added 300k jobs in August, while the unemployment rate is expected to remain unchanged at 3.5%. A better-than-expected report could reinforce aggressive bets on rate hikes and bring S&P 500 bears back into the picture. Meanwhile, the index remains under pressure on the daily charts, struggling to heal the deep wounds inflicted by last Friday’s sell-off.
Looking at the technical picture, prices remain under pressure on the monthly timeframe. There were consistently lower lows and lower highs as the candlesticks traded within a monthly bearish channel. Resistance is found at 4300 while support lies at 3650. Given that the bears remain in the driver’s seat, the next stop could come in at 3650.
Things are looking a little more colorful on the weekly charts. Prices are trading below the 50 and 100 week simple moving averages and still within a weekly declining channel. However, support is found at 3650 and the 200-week simple moving average. After last week’s hit, the S&P 500 could be limping lower, with 3650 acting as a key point of interest on the W1 time frame.
There is more clarity and hints on the next potential move for the S&P 500 on the daily charts. Having sliced through the 4121 level like a hot knife through butter, price needs to break out of the clutches of the simple moving 50 and 100- Solve day average. Below this point we have 3945 support followed by 3810 and 3700 respectively. If the bulls fight back, prices could rally back towards 4121, 4200 and the 200-day moving average at 4290.
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