fundamental overview
The strong bullish momentum in the S&P 500 has diminished recently as the prolonged US-Iran standoff has brought attention back to underlying risks.
The continued pressure for a diplomatic solution rather than another all-out war is supporting risk appetite on the hope that an agreement will eventually be reached. However, due to the impasse, oil prices are rising, and we are now back at triple digit levels.
There is no possibility of any change in this soon because Trump has rejected Iran’s proposal to first open the Strait of Hormuz and then hold nuclear talks. Unfortunately, with stock prices at all-time highs, Trump will feel no pressure to concede.
Therefore, we may be stuck in a prolonged consolidation phase until the next major catalyst.
If the Strait of Hormuz remains closed for a long time and oil prices remain high, it could also set the stage for the next big sell-off, forcing the Fed to raise interest rates in the coming months.
Today, we have the FOMC policy decision and although the Fed is expected to keep everything unchanged amid US-Iran uncertainty, there are risks to a more hawkish tilt due to resilient US data and a longer than expected US-Iran war. A neutral Fed should not bring much volatility, but a more hawkish Fed could trigger a larger volatility.
S&P 500 Technical Analysis – Daily Time Frame
S&P 500 – Daily
On the daily chart, we can see that the S&P 500 has lost momentum recently amid the US-Iran standoff. The previous all-time high around the 7,040 level may now act as support. If the price bounces back, we can expect buyers to step in with a defined risk below the support to position a rally to new all-time highs. On the other hand, sellers will look for a break of lower levels for a further decline towards 6,800 levels.
S&P 500 Technical Analysis – 4 Hour Time Frame
S&P 500 – 4 hours
On the 4-hour chart, we can see that the key uptrend line has dropped due to consolidation. This is usually preceded by a larger pullback or more extended consolidation before the next move. Again, from a risk management perspective, buyers would be better off risk rewarding setups around support to push to new highs, while sellers would wait for a break lower to open the door to new lower lows.
S&P 500 Technical Analysis – 1 Hour Time Frame
S&P 500 – 1 Hour
On the 1-hour chart, we have a minor resistance zone around the 7,190 level. Sellers will likely continue to make moves around these levels with a defined risk above the resistance on a decline to the support at 7,040. On the other hand, buyers will be looking for a break to pile up for a rally to new record highs. The red lines define the average daily range for today.
upcoming catalyst
Today we have the FOMC policy decision. Tomorrow, we will get US Q1 GDP, US Employment Cost Index and the latest US Jobless Claims data. On Friday, we will conclude the week with the US ISM Manufacturing PMI.
