U.S. equities are poppin’ up bullish signals ahead of the Fed’s policy decision!
Will we see multi-day rallies this week?
Let’s take a look at what the S&P 500 Index (SPX) is showing us on the 4-hour time frame:
S&P 500 Index (SPX500): Daily
SPX started making higher highs and higher lows in mid-June when the Fed first raised its interest rates by 75 basis points and markets started pricing in “peak inflation” in the U.S.
The party took a turn in mid-August when traders priced in the Fed (and other major central bankers) being unbothered about the recession risks of aggressive rate hikes.
SPX bounced lower from the 4,400 zone and dropped allll the way to and then just below its trend line support on the 4-hour time frame.
Can the index recover its mojo?
A bit of optimism and profit-taking has closed the gap on the 4-hour time frame and it looks like there could be room for some upside momentum before the Fed releases its latest policy decision.
It also doesn’t hurt that the 100 SMA has crossed above the 200 SMA for the first time this year.
I wouldn’t bet on sharp upswings though.For one thing, the Fed is not yet done with its aggressive interest rate hikes. While markets are still pricing in a 75 bps rate hike this week, they also believe that the FOMC gang will pencil in higher interest rates by the end of the year.
Recession risks also remain in play especially especially since latest inflation figures point to the major central banks keeping their rates high for a while.
If this week’s central bank events lead to risk-taking, then SPX could extend its bounce and maybe revisit its 4,400 highs.
But if higher interest rates and concerns of a deeper recession extend longer-term growth concerns, then SPX could see a break-and-retest situation that could drag the index below its 3,650 June lows.
Make sure to stick around during the major central bank events so you don’t miss out on any trading opportunity!
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