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There seems to be a more defined technical playbook ahead of next week’s key FOMC meeting emerging.
As things stand, the stochastic momentum is starting to turn up after the index fell 80 points or 3.9% from the all-time highs of 2119. The rate of change in price (as measured by the 14-day RSI) is starting to run higher as well, but remains below the 50 level, although it has broken the recent trend. There is no glaring buy signal for momentum-focused traders yet, but we could be seeing a turning point, especially as the index has closed above the five-day average, which has capped gains of late.
The 38.2% retracement of the February to March sell-off (at 2069) could be key here, so an upside break could be buying opportunity for traders, placing potential stops just below the rising uptrend at 2025. On the other side of this trade, a rejection of 2069 and a subsequent break of the uptrend would be a bearish development and would suggest better conditions to short the market.
The USD has become the key driver of price action it seems and the Federal Reserve knows it. The prospect that the FOMC will remove the word ‘patient’ from its statement next week is high. However, it may very well say it is taking USD strength into consideration when setting monetary policy. This in theory would be taken well by the market and I feel may get more attention from the market as we go into the meeting.
Potential trade idea:
I would look to stay neutral for now, but buy on a break of 2069, placing a potential stop loss around 2025 for a re-test of the all-time high. The potential idea risks 2.1%.
Traders could short the US 500 cash on a close below the rising uptrend, potentially adding to the short on a break of the 16 December low of 1968. Stops could be placed just above the rising trend around 2045.