The S&P 500 Index Futures (CME: ES) sits at a crossroads, with cautious pre-earnings and Fed decision jitters looking to test the index’s recent three-week winning. While the index closed slightly lower on Friday, it secured weekly gains, buoyed by encouraging economic data like lower-than-expected core PCE inflation. This week’s calendar, however, is jam-packed with pivotal events.
The main event is the Federal Open Market Committee (FOMC) meeting on February 1st. While a rate hike is unlikely, the Fed’s forward guidance will be scrutinized for any hints of potential rate cuts later this year. A dovish tilt could reignite the rally, while a hawkish stance might trigger profit-taking. Earnings season also enters a crucial phase, with tech giants like Apple, Microsoft, and Alphabet scheduled to report. Positive earnings surprises could extend the market’s upward momentum, while disappointments could trigger sector-specific sell-offs.
Adding further complexity, key economic data like Non-Farm Payrolls, ISM Manufacturing PMI, and JOLTs job openings are due for release. Strong data could reinforce the Fed’s hawkish tone, while weak data could support dovish expectations.
The 4-hour chart reveals the S&P 500 consolidating above its key moving averages [20 (green line), 50 (blue line), and 100-SMAs (orange line)], highlighting continued buying pressure. The RSI fluctuates around 59.69, indicating neutral momentum. However, the recent break of the 20-SMA above the 50-SMA and 100-SMA could signal a potential bullish trend.
Short-term trading opportunities could exist towards the 4,933.50 resistance level should the 20-SMA provide significant support in the upcoming sessions. A break above the initial resistance would leave the 4,954.75 resistance level as the next significant barrier higher.
However, a break below the 20-SMA could confirm the short-term bearish momentum and would offer short-term trading opportunities towards the 23.60% Fibonacci retracement level (4,889.25). A break below the initial support would bring the 38.20% Fibonacci retracement level (4,862.00) and 50.00% Fibonacci retracement level (4,840.00) into play in the short term.
The S&P 500 faces a critical week with a confluence of fundamental and technical factors at play. The interplay between economic data, earnings surprises, and the Fed’s decision will likely dictate the market’s direction. While the current price action suggests a potential upward bias, cautious optimism is warranted.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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