S&P 500 Bounce Stalls at 4200 as Rates Rise, Dollar Firms: What to Expect Next

investing.com:

Stocks traded higher for the second day, with the S&P 500 climbing by 65 bps. The index was oversold last week, and this week, that is no longer the case. The index trades well above the lower Bollinger band, with an RSI of around 40.

We have now retraced about 61.8% of wave five down, and today’s rally looks like a pretty standard diagonal triangle, with the rally taking it around 4,200. Additionally, we filled a gap of around 4,190. So, from a technical standpoint, if we stopped rallying at these levels, it would make a lot of sense.

The flip side is that there is also a gap at 4,250 that needs to be filled, and the 200-day moving average is up in that region. The 4,250 area would also be a 50% retracement of the impulse move lower. At this point, I have no conviction on this market because there is just too much important data left to come this week, and most of it doesn’t start until tomorrow; the tails are that wide.

The BOJ was important, but I don’t think much changed from my perspective as the 10-Year reference rate was raised to 1%, and it appears the cap has been removed as long as the market stays orderly. The BOJ is in the process of normalization, which means that rates will need to go higher in Japan. It seems the BOJ will only determine the pace at which it allows those rates to rise.

All of the data up until today suggests that the Fed will maintain a hawkish tilt at today’s meeting but will probably skip the rate hike, leaving the door open for December. The ECI data supports Powell’s hawkish language heard just two weeks ago. So, as long as the data stay strong in the US and the data in Europe continues to weaken, and the BOJ does what it does, the dollar is likely to strengthen further, as interest