The S&P 500 index has drifted drifted downwards after it tested the important resistance point at $4,181. It retreated to a low of $4,095 after the latest interest rate decision by the Federal Reserve and as region banks continued collapsing.
Fed and regional banks
The biggest stocks news this week was the monetary policy meeting by the Federal Open Market Committe that concluded on Wednesday. In that meeting, the committee unanimously decided to hike interest rates by 0.25%. That was a surprise since most analysts were expecting a few members to pause.
Watch here: https://www.youtube.com/embed/fTkOA1IGxsU?feature=oembed
The other big news was the collapse of First Republic Bank on Monday. In a statement, the FDIC announced that it was seizing the bank and then quickly selling to JP Morgan. Sadly, it seems like other banks like Western Alliance and PacWest are on the verge.
Despite of all this, the fear and greed index has moved from the neutral point of 51 on Wednesday to the greed area of 53. In most periods, the S&P 500 index tends to do well when investors are greedy. This is a sign that the S&P 500 and its associated ETFs like the SPY could be ripe for a bullish breakout.
The market momentum, which looks at the S&P 500 performance against the 125-day moving average, has moved to the greed zone. The same is true with the stock price strength, put and call options, and safe haven demand. The only sub-index in the red is junk bond demand.
Therefore, the S&P 500 index will today react to the decision of the Federal Reserve. As my colleague wrote here, there is a likelihood that the Fed is bluffing by maintaining a hawkish tone. The other key catalyst will be the latest Apple earnings.
S&P 500 index technical analysis
S&P 500 chart by TradingView
On the daily chart, we see that the S&P 500 index has been stuck below the important resistance level at $4,181. This was the highest point on February 2 and May 2. As such, it is clear why the index is struggling to move above this level. This pattern can be seen as a double-top whose neckline is at $3,808. It is also at the 50% retracement level.
Therefore, I believe that the index will soon have a bullish breakout, with the next point to watch being at $4,400. A drop below the support at $4,000 will invalidate the bullish view.
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