S&P 500 Technical Analysis – Dovish bias stays a tailwind for the market

Fundamental
Overview

The S&P 500 rallied
strongly on Friday as Fed Chair Powell tilted more dovish by saying that “with
policy in restrictive territory, the baseline outlook and the shifting balance
of risks may warrant adjusting our policy stance.”

That saw traders firming up
expectations for a rate cut in September which now stands around 82%
probability with a total of 54 bps of easing by year-end. Overall, it’s not the
repricing in interest rates expectations that supported stocks but hedges being
unwound.

Now, the focus turns to the
US NFP report next week which is going to be crucial and will influence greatly
interest rates expectations.

Strong data might take the
probability for a September cut towards a 50/50 chance but will certainly see a
more hawkish repricing further down the curve which could weigh on the market
in the short-term.

Soft data, on the other
hand, will likely see traders increasing the dovish bets with a third cut by
year-end being priced in and likely support the stock market.

S&P 500
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that the S&P 500 bounced from the major trendline around the 6,365 level and then the
momentum increased following Powell’s speech. If we were to get another
pullback into the trendline, we can expect the buyers to lean on it again to
position for further upside. The sellers, on the other hand, will look for a
break lower to pile in for a drop into the 6,200 level next.

S&P 500 Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see more clearly the recent bounce on the trendline and the subsequent rally.
There’s not much else we can glean from this timeframe, so we need to zoom in
to see some more details.

S&P 500 Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see that we broke above a downward trendline that saw buyers increasing the
bullish bets before undergoing a pullback. We have now another downward
trendline defining the pullback. The sellers will likely continue to lean on it
to keep pushing into new lows, while the buyers will look for a break higher to
increase the bullish bets into a new all-time high. The red lines define the average daily range for today.

Upcoming
Catalysts

Today we have the US Consumer Confidence
report. Tomorrow, we get the latest US Jobless Claims figures. On Friday, we
conclude the week with the US PCE price index.