S&P 500 – Talking Points
- Strong retail sales data weighs on equities
- S&P 500 futures hold key support at 3970
- Fed officials continue to beat the hawkish drum
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US stocks are pushing lower following strong retail sales data this morning, as traders once again reassess the potential implications on Fed policy. The report showed the largest increase in eight months in October, indicating that the US consumer continues to thrive amid the Fed’s tightening cycle. The 2s-10s spread inverted to -60 basis points earlier in the session, the largest inversion since 1982. Equities appear to be taking a breather after a robust melt higher following soft CPI data. Optimism surrounding peak Fed hawkishness along with headlines regarding China’s reopening have fueled risk sentiment in recent sessions.
While market participants remain optimistic, Federal Reserve officials continue to be cautious. In a packed slate of Fedspeak this week, central bankers have pushed to remind traders that the battle against inflation remains far from over. In comments made earlier today, San Francisco Fed President Mary Daly bluntly stated that a pausing of rate hikes is “off the table.”
Aside from retail sales, underwhelming guidance from mega-retailer Target took shares lower by as much as 15%. The retailer warned about consumer tendencies, and also gave soft guidance for 2023. Earnings season has been volatile, as the market has punished companies for even the slightest of misses.
S&P 500 Futures (ES)
After the market digested the news of this morning, ES initially sold off from the 4000 area into key support between 3960-3970. This area has comfortably acted as a floor for price following the post-CPI squeeze, as bears have been unable to chip away at this area over the last few sessions. Equities may remain elevated as the US Dollar continues to weaken. As long as the support zone at 3960 holds, bulls may look to finally make a sustained move beyond fib resistance around 4010.
S&P 500 Futures 2 Hour Chart
Chart created with TradingView
When we back out to a longer timeframe, we can see that ES is simply consolidating in a very tight range following the monster 5.5% move from last Thursday. We have yet to achieve a daily close above the 61.8 fib of the decline off the August swing-high at 4010, and this may need to be breached soon in order for the rally to continue. The longer we wait, the more time bears are being given to step back in. That being said, bulls may look to make a renewed assault on the 200-day moving average at 4074.
Should price manage to break below the current floor at 3960-3970, bears could look for an initial scalp down to the 100-day moving average at 3914. Without a fresh catalyst, ES may continue playing “ping-pong” in this recently defined range.
S&P 500 Futures Daily Chart
Chart created with TradingView
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— Written by Brendan Fagan
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