Calm before the Storm? S&P 500

The S&P 500 is in wait-and-see mode ahead of the FOMC

Quiet session 2

It was a quiet day for the S&P 500.  The Index was near unchanged on Tuesday as we head into the Fed meeting on Wednesday afternoon.  The big question everyone is waiting to hear the answer to is: Will the Fed address the move higher in interest rates (some 65 basis points in 10-year yields) since the last meeting, and if so, how?  Will the Fed be restructuring the bond buying program (currently at $80 billion of Treasuries and $40 billion MBS per month)? Perhaps they will provide a rosier outlook in the dot plot, in which they would move the timeframe forward as to when they would expect to hike rates.  Or maybe they do nothing…and continue with the ongoing theme that inflation expectations are transitory and the rise in yields is unsustainable. See our full Fed preview.

It seems though, that the large cap S&P 500 is in wait-and-see mode.  The index is near unchanged on the day after reaching new highs earlier in the session.  However, the range on the day is only 28 handles. If prices do decide to pull back after the meeting, it wouldn’t be that unexpected.  Price is grinding up against the top trendline of and ascending wedge and the psychological round number resistance near 4,000.  The RSI is diverging with price.  Perhaps a spike through 4,000, take out stops, then a pullback? Maybe. 

Source: Tradingview, City Index

But if price did pullback, how low could it go?  The most immediate level is the confluence of support near the 38.2% Fibonacci retracement from the lows of March 4th to the highs on March 16th, and the upward sloping bottom trendline of the ascending channel near 3876.  Below there is the 50% retracement level and the 61.8% Fibonacci retracement from the same timeframe near 3846 and 3816,25, respectively.  Below there is March 4th lows near 3719.25.

Everything you need to know about the Federal Reserve

Longer term,  if 10-year yields continue to rise, we can expect S&Ps to fall even further. The upward sloping green trendline dates all the way back to January 2018, which crosses near 3675.  And then is horizontal support from previous highs near 3587, which also happens to be the 50% retracement level from the September 24th lows to Tuesdays highs. 

If price breaks below there, the expected target for an ascending wedge, which is a 100% retracement, comes into play.  Below 3587, price looks like if could fall rapidly to the target and horizontal support near 3190.

It was a very quiet Tuesday.  Expect the same heading into the meeting on Wednesday.  If the Fed gives the sense that they may begin sooner than later, the Jenga tower may be ready to fall over.

Learn more about index trading opportunities.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.