The S&P 500 futures (CME: ES) recently eased back from their record highs, reflecting a sense of caution injected by the latest earnings reports from major tech companies just before the Federal Reserve’s imminent interest rate decision on Wednesday. On Tuesday, Alphabet and Microsoft unveiled their quarterly results, leading to post-market declines of 5.34% and 0.75%, respectively.
However, the day’s focal point undoubtedly revolves around the Federal Reserve’s interest rate decision. While the consensus points towards a pause in rates, the market eagerly awaits clues regarding the potential timeline for future rate cuts. According to the CME FedWatch Tool, there is a 45% probability of the first rate cut happening in March. The comments from Fed Chair Jerome Powell have the potential to swiftly alter these probabilities, creating a dynamic landscape in the equity market. Traders stand ready to recalibrate their expectations based on the insights shared during Powell’s speech, offering a spectrum of opportunities in the market.
Technical
On the daily chart, the momentum is still firmly in the bulls’ favour, as a breakout occurred from a temporary consolidation. However, volumes are declining, suggesting that the market is exercising caution in determining its next directional move.
If the current pullback is sustained in the upcoming sessions, a retest of the resistance at the prior consolidation could occur at 4,840.25. Any movement below this level could trigger a breakdown of the trend, potentially pushing the futures below the 25-SMA (green line) toward 4,744.75, where the 50-SMA (blue line) could provide support. This could be a psychological level, where a pivot could occur to retest the breakdown level, or an additional leg lower could confirm the downtrend toward 4,666.00.
However, the uptrend could continue if the futures remain above the 4,840.25 level. Resistance at 4,957.00 could then be the only hurdle to the bulls, as a breakout could set the futures up to continue forming record highs.
Summary
The S&P 500 futures have recently pulled back from record highs ahead of the Federal Reserve’s interest rate decision. Support at 4,840.25 could be a crucial level to watch if the pullback is sustained following the commentary from Jerome Powell later today.
Sources: Koyfin, Tradingview, Reuters
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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