The S&P 500 futures (CME: ES) have recently been under pressure, spurred by caution in the market’s repricing of when it anticipates the first round of interest rate cuts to occur. Before the recent jobs report, the CME FedWatch Tool attributed an 88.5% chance that rates will be lower after the March meeting, a probability which has since retreated to 63.8%, confirming the fall in confidence among market participants.
The Non-Farm Payroll report last week showed that the US economy added 216K jobs, higher than the 170K consensus from the prior 173K. In addition, the unemployment rate remained at 3.7%, defying consensus for a rise to 3.8%, while the average hourly earnings growth came in at 4.1%, up from the prior 4% and going against the consensus for a drop to 3.9%. As we advance, the US CPI on Thursday could move the markets again, as the current uncertainty around the Federal Reserve’s interest rate stance could open opportunities for traders. Additionally, big banks will report earnings this week, kicking off the first earnings season of the year, which could inject additional volatility in the movement of the futures.
Technical
On the 4H chart, a descending channel has emerged, the crossing of the 25-SMA (green line) below the 50-SMA (blue line) and 100-SMA (orange line) confirming the presence of sellers in the market. While a breakout occurred above the dynamic resistance of the channel, the sustainability of a trend reversal is at risk of a possible retest at the breakout point, which could determine the directional price action as we advance.
Support is established at 4,709.50 and could come into play if the futures fail to bounce off the dynamic resistance to continue the uptrend. Any movement below this support level could result in a continuation of the current channel formation, with the Fibonacci midpoint at 4,695.50 then becoming a possible destination. If the CPI data is unfavourable for the equity market, this pullback could then be sustained toward 4,681.75 and 4,660.75, the Fibonacci golden ratio.
However, if the futures manage to bounce off the dynamic resistance, another trend reversal to the upside becomes possible. Resistance at 4,757.43, backed by the 25-SMA, could pose a massive hurdle to the bullish momentum. However, a breakthrough could open the door to a sustainable expansion, bringing higher resistance at 4,791.98 into play, where the 50-SMA could provide strong resistance.
Summary
The sustainability of the recent pullback in the S&P 500 futures is currently at risk as the bulls tease a breakout from the descending channel. If the futures remain above support at 4,709.50, a trend reversal could be on the cards, with resistance at 4,757.43 presenting the first hurdle to the momentum.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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