Fundamental Overview
The S&P 500 rallied strongly on Friday as Fed Chair Powell tilted more dovish by saying that “with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
That saw traders firming up expectations for a rate cut in September which now stands around 82% probability with a total of 54 bps of easing by year-end. Overall, it’s not the repricing in interest rates expectations that supported stocks but hedges being unwound.
Now, the focus turns to the US NFP report next week which is going to be crucial and will influence greatly interest rates expectations.
Strong data might take the probability for a September cut towards a 50/50 chance but will certainly see a more hawkish repricing further down the curve which could weigh on the market in the short-term.
Soft data, on the other hand, will likely see traders increasing the dovish bets with a third cut by year-end being priced in and likely support the stock market.
S&P 500 Technical Analysis – Daily Timeframe
On the daily chart, we can see that the S&P 500 bounced from the major trendline around the 6,365 level and then the momentum increased following Powell’s speech. If we were to get another pullback into the trendline, we can expect the buyers to lean on it again to position for further upside. The sellers, on the other hand, will look for a break lower to pile in for a drop into the 6,200 level next.
S&P 500 Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the recent bounce on the trendline and the subsequent rally. There’s not much else we can glean from this timeframe, so we need to zoom in to see some more details.
S&P 500 Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we broke above a downward trendline that saw buyers increasing the bullish bets before undergoing a pullback. We have now another downward trendline defining the pullback. The sellers will likely continue to lean on it to keep pushing into new lows, while the buyers will look for a break higher to increase the bullish bets into a new all-time high. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the US Consumer Confidence report. Tomorrow, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US PCE price index.
