The S&P 500 is attempting to recover following a downward correction from the upper trendline of the channel. Since the beginning of August, the movement has started to appear flatter after the initial correction. There are several reasons for this. The downward base effect of year-on-year CPI has ended, and inflation has started to pick up again, possibly even slightly stronger than expected. Rising energy prices and the new upward trend in the Bloomberg Commodity Index might further increase inflationary pressures in the coming months. A strong dollar is also exerting downward pressure on many firms, particularly tech giants like Apple, Microsoft, or Tesla due to slowing international sales. Additionally, financial conditions are becoming tighter.
Despite the influx of bearish news, the downtrend has already concluded, and the uptrend is still in progress. As long as it continues, any downward corrections could present buying opportunities for swing traders over the medium term. Currently, the middle trendline of the channel (currently at 4460) is supporting the price, while the 50-day moving average (currently at 4504) is exerting downward pressure. A break to the downside could lead the price back to the 4325 support level, after which the movement could strengthen horizontally or revisit the lower trendline of the channel. Regarding upward movements, above the 50-day moving average, 4625, the previous peak is the key resistance to watch if the index intends to test the upper trendline of the channel.
Today’s FOMC meeting is of particular importance, despite no expected policy changes, because the Fed members will update their forecasts for the economy and interest rates. Traders can anticipate an upward revision in the GDP forecast and a downward revision in unemployment, as the US economy has proven to be much more resilient than expected. However, the focus will be on inflation and the Federal funds rate forecast.
In June, members projected a 5.6% forecast for the Federal funds rate, indicating that we are likely to see another rate hike in the coming months. While members might retain this forecast for now, they may not give it much weight during the press conference today, potentially delivering a hawkish statement followed by a dovish press conference. On the other hand, even a slight downward revision could provide the S&P 500 with enough momentum to surge towards the 4625 resistance level.
