(Alexander Kuptsikevich – FxPro Financial Services Limited)
The S&P500 index closed last week with a powerful rally, rebounding from its 200-week moving average. By the start of trading in New York, index futures managed to overcome the initial weakness caused by the fall in Chinese equities.
We also note that in the previous three weeks, investors pulled the indices upwards on declines below this line. This buying spree represents the intention of market participants to remain within the paradigm set up over the last couple of decades.
The last time the index was persistently under this line was in March 2020 due to high covid uncertainty. Before that, the S&P500 dipped in June 2008 and May 2001. In all those cases, the US economy ended up in a recession and the monetary authorities aggressively eased policies to put the economy back on a growth path.
However, if the S&P500 is now the best the market can hope for, it is a slowdown in the pace of policy tightening. So, on Friday, the markets were turned around by a WSJ article that the Fed, after a 75-point rate hike in November, is further prepared to put on breaks on rate hiking. This is important news as the WSJ often acts as the Fed’s informal mouthpiece.
Without any negative surprises from macroeconomic data that could cause the Fed to change its mind, the markets will probably continue their gradual recovery in the coming weeks.
Not only is the 27% market decline on the bullish side, but it has also made many companies attractive for buying. There is also a bullish divergence in price and RSI on the weekly charts, setting the stage for further gains.
Cautious buyers would be wise to wait for the S&P500 to get above 3820, where the 61.8% level of the August-October decline coincides with the highs of early October.
But the recovery is too fresh and fragile, and the current bounce could easily stall. If that is the case, we should be prepared for markets to move to new lows in the coming weeks. But this is an alternative scenario, not the main one.
Murrey math lines: AUD/USD, NZD/USD
AUD/USD, “Australian Dollar vs US Dollar”
On H4, the quotes are under the 200-day Moving Average, indicating the prevalence of a downtrend. The RSI has broken through the support level. A test of 3/8 (0.6225) should be expected, followed by a breakaway and falling to the support level of 2/8 (0.6103). The scenario can be cancelled by the price rising over the resistance level of 4/8 (0.6347). After this, the pair may rise to 5/8 (0.6469).
On M15, a breakaway of the lower border of VoltyChannel will increase the probability of a decline to 5/8 (0.6469) on H4.
NZD/USD, “New Zealand Dollar vs US Dollar”
On H4, the quotes are also under the 200-day Moving Average, indicating a downtrend, and on the RSI, the support level has been broken. A test of 2/8 (0.5615) is expected, followed by a breakaway and falling to the support level of 1/8 (0.5493). The scenario can be cancelled by coming over the resistance level of 3/8 (0.5737). This can provoke growth of the pair to 4/8 (0.5859).
On M15, the decline can be additionally supporter by a breakaway of the lower border of the VoltyChannel.