S&P 500, Weekly
Yesterday Fed Chair Yellen largely mirrored the recent FOMC statement and her own speech last week expressing cautious optimism about the expected rebound in U.S. growth, amid frustration about the continued low level of inflation. She cited global risks to this mostly healthy appraisal, and reiterated that it is not the lift-off but the policy path and pace of tightening that really matters. She expects a gradual tightening pace that still keeps policy accommodative.
Yellen’s speech didn’t move the markets that much yesterday. In fact, Nasdaq Composite (-0.12%), Dow Jones Industrial Average (-0.02%) and S&P 500 (-0.07%) finished the day almost unchanged but slightly in the red. Financial sector, up by 0.84%, was rising strongly while Utilities gained 0.49% in absolute terms. Technology remained unchanged after hitting a resistance level the day before. Semiconductor sector ended the day down by 0.50% after a period of weakness. Even though semiconductor sector etf (SMH) is now at support and could therefore have a technical rally, the preceding weakness in semiconductor stocks is not a sign of a healthy market. Weakness in the technology sector etf (XLK) suggests the same. S&P 500 e-mini future (ES) has since yesterday’s close moved to the resistance area (2111.50 – 2134) I pointed out in my previous report.
S&P 500, Daily
Yesterday investors reacted positively after Bank of America (+3.21%), PNC (+0.84%) and US Bancorp (+3.76%) reported earnings. While US Bancorp’s earnings were in line with expectations the others exceeded them. Big US companies reporting today include ADV Micro Device, Charles Schwab, Citigroup, Ebay Inc., Goldman Sachs and Google.
ES has now advanced to the 2111.25 resistance level as expected. Market is overbought as per Stochastics Oscillator, while RSI and MFI are still below their overbought thresholds. ES is trading at descending trendline and close to the upper daily Bollinger Bands. Therefore, market is near to a potential turn around level but based on the recent price action it seems likely that it will push further in to the resistance area. Support and resistance levels: 2078 and 2134.
S&P 500, 240 min
ES has been trading higher as expected but is now at resistance. The width of the short term bottom indicates that the market will move to a bit higher. Resistance at 2122 coincides with the projection and is a pivotal high June 22nd. Stochastics has diverged from price indicating that momentum is slowing down and potential turning point is getting close. The next important support level is at 2078, while the weekly high from May at 2134 is the most important resistance level after 2122. In very short term, the nearest supporting pivotal level is at 2107.75 (short red line).
Conclusion
Yellen’s determination to raise rates is not supportive for the stock market that has been used to easy and cheap money. This together with the fact that US stock market is trading at very high levels with high valuations means that market participants aren’t eager to take the stocks into new highs. Price rallied over the last two days but now it’s trading at resistance. Area between 2111.50 and 2134 is an important weekly resistance. Market is likely counter substantial supply inside this range. This should bring ES back down to 2073 – 2080 range.
Janne Muta
Chief Market Analyst
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About Janne Muta, HotForex’s Chief Market Analyst
Janne Muta is a seasoned industry professional with over 16 years experience in the global markets. Originally from Finland, Janne has worked for institutions in both Helsinki and London as an institutional fund manager, global market analyst and FX educator.
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