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Today, we’re taking a quick look at price action in the broad equity markets, specifically in the S&P 500. After a quick move lower and bounce, are more sellers looking to jump in?

Short-term Deadcat Bounce in S&P 500?

S&P 500 E-mini Futures 1-Hour Chart
S&P 500 E-mini Futures 1-Hour Chart

For all of you equity, futures, and CFD traders out there, we’re taking a look at this textbook technical pattern on the S&P 500. Last week, the market broke down on a combination of Evergrande China debt crisis headlines and the usual concerns with global growth due to the pandemic. After trending lower in September and consolidating for a week between 4440 – 4480, the market made a swift move down to 4300 before finding support and bouncing. Is this a deadcat bounce where we may see move lower after today’s rally? Or is this a legit short-term bottom?

Well, we actually have another big time catalyst ahead in the form of the latest monetary policy statement from the Federal Reserve tomorrow. Expectations are for the FOMC to announce an official start to tapering the pace of asset purchases in November, as well as give revisions to growth and inflation outlook.  The tapering is likely priced into the market, but we may get a surprise  from the growth and inflation expectations, and the latest dot plot data shows a hawkish shift (more than 25 basis point hike in 2022, 25 basis point hike in 2023, 40 basis point hike in 2024 is currently expected).

Given the potential volatility that may come from this event, there are many potential short-term opportunities here, but we’re sitting on the sidelines now with no bias.  But right now, the momentum is with the sellers and if the market reacts bearishly to tomorrow’s Fed statement, we could see downside momentum pick up. And based on the weekly ATR of around 100 points, a break of 4300 is possible and maybe even lows around 4250.

Of course, if we see the Fed spark a bullish move (or maybe even news of the Chinese government bailing out Evergrande?), we’ll be watching the Fibs area for an upside break. A break and retest above 4400 would likely draw in technical bulls and possible profit taking from those who shorted the S&P in the last week.

What do you all think? Will the Fed lean hawkish in tomorrow’s statement? Which scenario is more likely: a break above 4400 or a retest of 4300 this week? Let me know in the comments section below!

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.