Conflicting Signals

Positive momentum from last week seems to have continued over the weekend. However, the Fed meeting this week could change the tone quickly.

A quick look at the charts shows that the market is looking to challenge the SPX-4000 level this week. It briefly rose above 4000 intra-day last week. This is an important psychological level that could form a new support range.

However, if the Fed comes out more aggressive on rates than the market is looking for, that could quickly knock things back down towards the 3800/3750 range. Markets seem to be looking for a 75 bp bump in rates. It’s the guidance that will be key. Is the economy responding as hoped or not? Will future rate hikes continue to be this aggressive?

Assuming the Fed maintains its general tone, the SPX is set up to close above 4000 this week, with the next significant price resistance at 4115/4150. Support remains at 3860/3700. (So, as you can see, there is a broad range. The short-term momentum may be positive, but there is not a strong indication this market can break out from here. And, as you can see in the chart below, the big hedge JPMorgan put on for their equity premium income strategy has lower boundaries than the current market movements seem to be indicating. This could end up being a bit of a price magnet that drags things back down for a bit. Much hinges on what the Fed says later this week.)

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