S&P500 (SPX) Price Analysis – Oct 27, 2023

Daily Price Outlook

Despite the robust U.S. growth figures, the global market sentiment has failed to turn positive, and it continues to show negative trends on Friday. Specifically, U.S. markets are facing a downturn, with the S&P 500 falling below 4,200 points after experiencing its worst one-day drop on the Nasdaq since February. However, this decline mirrors the performance of the European markets, as the STOXX 600 index has dropped by 1% and is hovering near a seven-month low, just ahead of the European Central Bank's (ECB) policy decision scheduled for Thursday.

Strong US Economic Data Supports Higher Interest Rates and Market Sentiment

Notably, the S&P 500 experienced a significant 2% drop on Thursday, just ahead of Fed Chair Powell's latest speech. Many people are awaiting guidance from the Federal Reserve Chair regarding the bank's potential actions at the upcoming meeting. It's anticipated that the Fed will maintain the current interest rates at 5.5% next week, despite the sustained strength of the U.S. economy. Furthermore, given the current impact of tensions in the Middle East, Powell may be inclined to provide reassurances about price stability. As of the time of this writing, the S&P 500 was trading 1.18% lower.

Although, the losses in the Standard & Poor's 500 major equity index might turn out to be short-lived, thanks to the strong U.S. growth figures that support the argument for prolonged higher interest rates. It is worth noting that the recent data revealed that the U.S. economy experienced its fastest expansion in almost two years during the third quarter. This growth was fueled by increased wages resulting from a tight labor market, which, in turn, boosted consumer spending.

Hence, this has heightened expectations that the Federal Reserve will continue to keep monetary conditions restrictive for an extended duration, leading to a rise in the dollar against various currencies.

Strong US Economic Data Supports Higher Interest Rates and Market Sentiment

On the economic data front, the US economy expanded by 4.9% in the third quarter, driven by robust consumer spending, surpassing expectations of 4.5%. Furthermore, there was a notable 4.7% increase in September in U.S. Durable Goods Orders, representing the most substantial rise since July 2020. Meanwhile, recent macroeconomic data from the U.S. continues to underscore the resilience of the economy, despite previous warnings of an impending recession.

Therefore, this economic strength should empower the Federal Reserve to sustain higher interest rates, subsequently offering support to market sentiment and acting as a favorable factor for the Standard & Poor's 500 major equity index.

S&P500 (SPX) - Technical Analysis

On October 27, the S&P500 exhibited a noticeable descent, settling at 4137.22, marking a reduction of 1.18% within a 24-hour span. When referring to the 4-hour chart, it’s clear that this benchmark index is currently wrestling with significant resistance and support levels. The pivot point, a crucial metric that traders often rely on to gauge potential price movement, stands firm at 4201. Immediate resistance is perceived at 4278, with subsequent levels at 4340 and 4399. On the converse, the immediate support is close to the day's low at 4131, with further supports expected at 4059 and a significant level at 4002.

Diving deeper into the technical indicators, the Relative Strength Index (RSI), a momentum oscillator that measures the speed and change of price movements, is currently at 28. This figure suggests an oversold condition, indicating potential upward price movement in the near term as the market could be due for a corrective bounce. However, one must also consider the broader trend, and currently, the price is trending below the 50-Day Exponential Moving Average (EMA50) of 4299. This is a classic bearish signal, suggesting a prevailing short-term downtrend.

When evaluating chart patterns, which are fundamental tools for traders, no definitive patterns are immediately discernible. However, it's essential to observe that the S&P500's current price levels are teetering close to significant support and resistance zones. This typically indicates that the market is at a crossroads, and traders should be on the lookout for potential breakouts or breakdowns.

In summary, the prevailing trend for the S&P500 is bearish, especially when the price is below the pivotal level of $4170. However, the RSI indicates potential oversold conditions, suggesting that a short-term rebound might be on the horizon. Traders and investors should keep a close eye on these key levels and indicators to gauge the market's next move.

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