9 Jan 2022 SPX Weekly - Inflation
Accuracy: 4/5 (80%)
Last Week
Last week I put my prediction on SPX to stay below 4830, which came true. And a large part of last week's analysis focus on the many volatile events that happened in the last week.
Above is the exact screenshot I posted in last week's SPX weekly post. I pointed that this upper trendline resistance will hold and projected to top at 4825 by last Friday. It appears the topping out happened right on Tuesday and SPX started declining with its biggest move due to FOMC meeting minutes.
So at the end of Friday, SPX falls into the area of support around 50 moving average.
Let's take a look into the 30 minute chart for more detailed price action in the above chart. Bear with me this time there's a little too much information cluttered as there are few key areas to point out.
Let's start with the fibonacci since it's the most colorful there. We can see after last week's pull back, SPX is currently at a 50% Fib level. Note that Fib often supports at 50% and 61.8%. So take note this 2 key area for potential support.
Another thing to look at is the Volume Profile Visible Range (VPVR) on the right side with yellow and blue bars. This shows within that screen, which price has the most volume. This indicator is only available in the paid version of TradingView. This tells us that there are more people trading in these areas and often create support and resistance areas. On VPVR, we see 3 areas with bigger bars.
- 4792 - top of chart where it resisted for many days, top of Fib.
- 4684 - the current area where SPX is after a quick move down, also Fib 50%.
- 4620 - this volume comes from December 2021 when SPX bouncing near 50 moving average on daily candle, slightly below Fib 61.8%.
Note that these numbers are not magic absolute price, we just want to take it as an area of reference.
Upcoming Week
For next week it's a pretty dilemma situation. Look at the yellow lines I drew projects the few potential support and resistance. SPX is currently right in the middle of all the support and resistance. What does this mean? It means it's in a position that can go BOTH ways. That's why it's a dilemma situation.
Together with the 3 high volume profile I pointed out in the Last Week section, these areas also kind of coincides with the projection with a top, middle and bottom.
From a technical perspective, there's a really wide range of possibilities moving into next week as we are right in the middle of all direction.
There are a few scenario that could play out.
Scenario 1 - Consolidation
First scenario, SPX consolidates within the current area similar to what happened in November and December last year as it's also in the same area that consolidated before.
Scenario 2 - Bearish
Second scenario, due to CPI not meeting expected forecast causing more inflation fears and FOMC decision, leading to SPX goes south fast to find either of the support below.
Scenario 3 - Bullish
Final scenario, SPX take off from current dip to 50 moving average towards the ATH area. High chance due to CPI result came out far better than expected that reduces fears on inflation which affects subsequent FOMC decision.
Economic Calendar
Let's look at the economic calendar for next week. We've got quite a handful of 3-star volatility events from Wednesday onwards too. Specifically on Wednesday, CPI is what the Fed's use to make decision on subsequent FOMC meetings. So Wednesday CPI result will be a key factor to determine where SPX will lead to.
So do watch out on CPI result before making any committed plays on SPX. For me, I often wait for the event to happen then I see where SPX is moving towards after that event to get an idea of the trend moving on.
Prediction
In this week's prediction, it's really hard to decide which way to go with as it's very dependent on economic event outcome. As I came out with 3 different scenarios above, personally I really don't have a strong conviction on any of them.
I do have a slight lean towards Scenario 1 but definitely not with strong conviction. But for a prediction, I'll go with Scenario 1 and have a very conservative target.
SPX to stay ABOVE 4600 by the end of next week.