S&P 500 Reignites Bullish Momentum After FOMC Price Discovery

S&P 500 News and Analysis

Has the extreme greed started as the Fed warns of upside risks to inflation?

Looking at the VIX Index, also known as a measure of fear, market participants expressed more anxiety ahead of this week’s CPI report than they did before the FOMC rate meeting. The lack of market concerns simply added to the current bullish momentum of the S&P 500 in the wake of the Federal Reserve’s decision to keep interest rates steady for the time being. Core CPI has proven to be a challenge for the Fed, but Tuesday’s data revealed a welcome move below 5.5% – a level that has inhibited progress on the inflation-reducing front.

Softening inflation boosts stocks, as the implication is that the Fed will not need to aggressively raise interest rates to keep inflation in check. However, a number of data points in the Fed’s Summary of Economic Outlook provided reasons for softening of equity valuations. For example, a higher expected core PCE rate (inflation) and a higher outlook for peak interest rates often lead to higher dollar and US returns while equities usually decline. This did not happen. Instead, markets chose to view an upward revision of real GDP growth and a lower revision of the unemployment rate by the end of the year as signs that the US economy is still moving forward at a respectable rate.

The CNN Fear and Greed Index provides a contrarian view of market sentiment, expressing caution when markets seek extreme returns. The index has moved further into extreme greed territory, suggesting that now may not be the time to chase this market.

CNN fear and greed indicator

Source: CNN Fear and Greed Index

S&P 500 Technical Analysis: S&P 500 continues advancing after shaky FOMC price action

Yesterday’s FOMC disclosures sent the index lower before the bulls dismissed the idea of ​​a pullback. In the end prices closed near flat but today and so far there seems to be a renewed bullish trend.

The previous gap above 4325 has not looked back as the next level of resistance emerges at 4510. Indicators are flashing that this market is overheated – most notably the RSI which has the indicator above overbought territory. However, it seems that the momentum is not lost as the MACD line and the signal line are diverging from each other. 4311 appears as the nearest support level (68% Fibonacci retracement of shorts in 2022).

Daily chart of the S&P 500 E-Mini Futures

Source: TradingView, prepared by Richard Snow

The weekly chart helps to identify the longer-term levels of interest, with the area now showing around 4550. The area comprises of the 78.6% Fibonacci retracement of the major 2022 decline at 4528 with the August 2021 high at 4550 adding to the bullish resistance.

Weekly chart of the S&P 500 E-Mini Futures

Source: TradingView, prepared by Richard Snow

– Posted by Richard Snow for DailyFX.com

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