S&P 500 Bracing For More Pain Ahead Of NFP?

Global equity bulls lingered in the vicinity on Tuesday as market sentiment stabilized following the Fed induced sell-off last Friday. Stocks in Europe flashed green while US futures rallied thanks to the risk-on mood. Although investors seem to be digesting the Fed’s vow to tame soaring inflation, a sense of caution continues to linger in the air ahead of another busy week for financial markets.

Last Friday, the S&P 500 was beaten black and blue by a firmly hawkish Jerome Powell. After stating that the Fed had no plans for a dovish pivot and warning that economic growth may be hit by higher rates, the S&P 500 tumbled like a house of cards. According to Bloomberg, traders are pricing in a 73% probability of a 75-basis point rate hike in September. It is worth keeping in mind that higher interest rates impact company earnings and the prices of the stock.                                                                   

This could be another wild week for the S&P 500 as investors brace for the US jobs report on Friday. Markets expect the US economy to have created 300k jobs in August while the unemployment rate is projected to remain unchanged at 3.5%. A report that surpasses expectations could reinforce aggressive rate hike bets – inviting S&P 500 bears back into the picture. In the meantime, the index remains under pressure on the daily charts, struggling to nurse the deep wounds inflicted by last Friday’s selloff.

Taking a look at the technical picture, prices remain under pressure on the monthly timeframe. There have been consistently lower lows and lower highs while the candlesticks are trading within a monthly bearish channel. Resistance can be found at 4300 while support resides at 3650. Given how bears remain in the driving seat, the next stop may be at 3650.

Things are looking slightly more colourful on the weekly charts. Prices are trading below the 50- and 100-week Simple Moving Average and still within a weekly bearish channel. However, support can be found at 3650 and the 200-week Simple Moving Average. After the beating last week, the S&P 500 may limp lower with 3650 acting as a key point of interest on the W1 timeframe.

There is more clarity and clues on the daily charts on the S&P 500's next potential move. After cutting through the 4121 level like a hot knife through butter, prices need to break away from the clutches of the 50- and 100-day Simple Moving Average. Below this point, we have 3945 support, followed by 3810 and 3700, respectively.  Should bulls fight back, prices could rebound back towards 4121, 4200, and the 200-day Simple Moving Average at 4290.

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