18 Sept 2022 SPX Weekly - Unexpected Overreaction

Accuracy: 31/37 (83.78%)

SPX above 3900 - Wrong

Last Week

I was pretty positive on CPI but it came out pretty unexpected. What's even more unexpected is the market reaction on the CPI data. To be honest the CPI didn't really had any impactful changes although it didn't come down which I guess many people are putting the expectation that it will be coming down. And the news seems to blow up that matter even more.

In actual numbers, actually the CPI isn't that bad. So it feels more like an overreaction to me on the market move. I guess this sentiment will continue for awhile with upcoming FOMC series again.

Looking at the daily candle chart, that big red candle is CPI release. It wiped off almost 4 days of bullish candle. Note that when it come back down near 3900, it seem to show sign of rejection on Friday just before closing.

In the 30 minute chart, we see after Tuesday dump on CPI data we went sideways for a bit before breaking lower and eventually closing Friday rejecting the 3835 area. Note that we did break the uptrend support trendline still, Friday's rejection towards the close didn't manage to close back above this trendline.  

Next Week

The 3900 area continues to be the key area to watch out for. Potential scenarios are retesting this resistance and go lower or breaking back upwards.

I think it will struggle around 3900 until the next economic event for another momentum push. Which leads us to take a look at what's happening next week on the economic calendar.

Economic Calendar

Once again FOMC will be the mover for next week. Note that this is my timezone, FOMC is actually happening on Wed in the PM session of regular trading hours. Then Friday PM Powell comes speaking.

So I'd expect smaller moves towards the first half of the week, unless there's more surprises coming up from other news. Maybe some anticipation buildup before FOMC. The next push of momentum should be led by what comes out from the FOMC and what Powell has to say. And of course how the media interprets and manipulate the news.

Prediction

Since we're on a downtrend with bearish momentum from CPI, I don't foresee some miracle bullish reversal anytime so soon. Unless Powell comes out and say "no worries, they got inflation under control" which is kind of impossible.

I also find this are of recent resistance an interesting key area - 3960. I'd say at least for next week this area will remain a key area that's hard to break.

SPX below 3960

Feel free to leave a comment on your thoughts.