Stocks don’t believe the Fed!

Over the past few days, Fed member after Fed member has been on the wires talking about how the Federal Reserve still has a long way to go to tame inflation. They talked about the need to get inflation to target, even at the expense of a strong labor market. San Francisco Fed President Daly said that she would start with 50bps for September because that is what the data is telling her. But she went on to say that “if we just see inflation roaring ahead undauntedly, the labor market showing no signs of slowing, then we’ll be in a different position where a 75bps increase might be more appropriate”. However, stock indices don’t quite see it that way as they continue to bust a move higher.

Markets seems to think that the PMIs released over that last few days show signs of a slowing world economy. In addition, inflation data seems like it may have peaked. Housing prices are lower, and some price components of manufacturing data were lower as well, such as the Philly Fed Manufacturing Index and the ISM Manufacturing Index. Does the Fed have it wrong? Bad data is good data for the stock market as it means that the Fed will raise rates as a slower pace, and possibly even stop all together by Q1 of 2023! However, the next Fed meeting isn’t until the end of September, so there is a lot more data to see before then. For now, stock markets seem to be betting on a less hawkish Fed at the September meeting.

What are economic indicators?

The S&P 500 has been moving lower since the beginning of the year. On June 17^th, the large cap index made a new low for the year at 3636, posting a false breakout below the bottom trendline of a descending wedge. As is often the case, when price fails to break one side of a pattern, it moves to test the other side of the pattern. On July 19^th, the S&P 500 broke aggressively above the top, downward sloping trendline of the descending wedge. Today, price broke above the 50% retracement level from the highs of March 29^th to the lows of June 17^th, near 4137.4. In addition, if today’s price closes above 4140.6, it will have formed a bullish engulfing pattern, indicating a possible further move higher. The next resistance is at the highs of May 30^th at 4214.6, then the 61.8% Fibonacci retracement level of the recently mentioned timeframe near 4255.1. Above there, price can move to the highs of May 4^th at 4308.6. However, if the Fed turns out to be correct, and inflation is still increasing, stocks may turn lower. The first horizontal support is at 3919.8. Below there, price can fall to a confluence of support at the top, downward sloping trendline of the long-term descending wedge and the lows of July 14^th, near 3721.6. The next support level is the low from June 17^th at 3638.8.

Source: Tradingview, Stone X

Trade the S&P 500 now: Login or open a new account!

Other US stock indices such as the NASDAQ 100 and the Russell 2000 have similar patterns. Both indices broke out of descending wedges and, today, broke above the 50% retracement level from the highs of March 29^th to the lows of June 16^th. Will stock indices continue to move higher? We may have to wait until Friday’s NFP data to find out!

Learn more about index trading opportunities.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.