Amidst anticipation surrounding the Federal Reserve’s upcoming policy meeting, the S&P 500 Index (CME: ES) begins the week with a modest uptrend, potentially marking the end of three consecutive sessions of declines. Last week, major indices experienced mixed performances, with the Dow and S&P 500 registering marginal losses, largely attributed to concerns over inflationary pressures and their potential impact on future interest rate decisions.
Fundamentally, investors are closely monitoring the Fed’s stance on monetary policy, particularly in light of recent US inflation data exceeding expectations. While the Fed is widely expected to maintain interest rates unchanged, the probability of a rate cut in June has slightly diminished to around 55%, down from nearly 80% earlier this month. Additionally, market participants are awaiting earnings reports from key players like Micron Technology and FedEx, which could provide further insights into the economic landscape.
Technical
The 4-hour chart shows that the index is currently trading at 5,198.00. The price action sits above the crucial 50-SMA (blue line) and 100-SMA (orange line), indicating a potential underlying bullish trend. However, the price remains capped below the 20-SMA (green line), suggesting a lack of strong recent momentum.
The upward slopes of the 50 and 100-SMAs further reinforce the bullish bias. If the positive momentum persists and the price breaks above the 20-SMA, a short-term trading opportunity towards the 5,230.75 resistance level might emerge. A decisive break above this resistance could open the path towards the all-time high of 5,257.25.
However, with the flat RSI (47.29) trading below the 50.00 price level, the potential for short-term pullbacks remains, with the 5,169.25 price level likely acting as the initial support should the 50-SMA give way. A break below the 5,169.25 price level, on significant volume, would bring the 5,134.75 and 5,092.00 price levels into play in the short term.
Summary
The S&P 500 faces a crucial week, caught between the potential for a bullish breakout on positive Fed signals or a pullback due to lingering inflation concerns. The technical indicators suggest a short-term trading range with upside potential towards 5,230.75 and downside risk towards 5,134.75.
Sources: TradingView, Trading Economics, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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