The S&P 500 is sitting on a knife’s edge. The September CPI report and the FOMC meeting to follow could act as a decisive catalyst in the battle between bears and bulls.
Source: TradingView, Market Rebellion
Last month’s Jackson Hole meeting saw Fed Chair Jerome Powell shake up the market with a hawkish tone. However, the Fed’s most important line:
“We will look at the totality of the data.” – Jerome Powell
That clear focus on data-dependence places a heavy importance on the September CPI report, which is set to release on the 13th. If the CPI report comes in below-expectations, and especially if it shows decreasing inflation, the market will likely rally in celebration of the second below-expectation inflation print in a row. However, if the CPI report comes in above expectations it could pour water on the “peak inflation” narrative that some have begun to forecast, including investment bank Goldman Sachs.
The September CPI report will be fresh on the minds of Fed officials when they attend the next Federal Open Market Committee meeting, which will be held on September 20th and 21st. That FOMC meeting will be the first time since Jackson Hole that the market will hear from Jerome Powell, and after the heavy emphasis on his prior hawkish tone, a 50 basis point hike (rather 75 basis points) would likely be seen as a dovish shift from the Fed.
The result of the September CPI report is anybody’s guess. However, with the S&P 500 sitting on not one, but two converging levels of support, the result will likely lead to big market moves. Here are three technical levels to watch that could help forecast where the stock market is heading next.
SPDR S&P 500 ETF Key Technical Levels
- $390: Since June 10th, traders have lent high importance to the $390 level. After closing at the level on June 10th, SPY retested it as resistance 6 times before successfully breaking out. Now, as the upward trendline from the June lows converges with the $390 level, SPY is looking to test the $390 level once again — this time, as support.
- The June 17th low ($362.17): The lowest point in 2022’s bear market. The SPY ETF has yet to retest this level, which many analysts (including Canaccord’s Tony Dwyer) believe must be done before the market can sustain any meaningful gains.
- The August 16th high ($431.73): Two months after falling to $362.17, the market rallied more than 19% to a high of $431.73 before rejecting off the 200-day moving average, ultimately closing at $429.70.
Let’s zoom-in to take a more in-depth look at how these three levels became so important.
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Technical Timeline of the SPY ETF from June to September
Source: TradingView, Market Rebellion
- June 10th: The SPY ETF falls -2.90%, closing at $389.80.
- June 13th: SPY gaps down, falling -3.80% in a single day.
- June 17th: SPY hits its 52-week low of $362.17 — the lowest it has traded since December 2020.
- June 24th: SPY tests the $390 level, closing the gap created on June 13th, and finishes the day at $390.08 (+3.18%).
- June 27th: SPY opens above the $390 level but is quickly rejected, closing below the $390 level, at $388.59.
- June 28th: SPY opens at $390.23 and is once again decisively rejected, closing the day at $380.65 (-2.04%).
- July 7th and 8th: SPY fails to break above the $390 resistance yet again, on both days, back to back.
- July 18th: SPY tests the $390 resistance level for the 6th time since June 24th, however at $389.09 SPY is rejected once again, closing the day at $381.95 (-0.81%).
- July 19th: After gaining 2.70% on the day, SPY finally charts a successful close above $390 level.
- July 20th and 21st: SPY falls in intraday trading to $391.03 and $391.63 respectively, however recovers and ends positive both days.
- July 26th: SPY falls -1.18%, stopping at the $390 level, and closing above it — at this point, prior resistance has become support.
- August 16th: After a stellar rally that took the SPY ETF more than 18% off the lows, the SPY rejects just pennies away from the 200-day moving average, ultimately closing at $429.70. This lines up with a triple top seen in the market earlier in the year, on April 25th ($428.69), April 28th ($429.64), and May 4th ($429.66) — setting the stage for the $430 level to be the next major battleground for bulls.
Will the September CPI Report Lead SPY to a Breakout, or a Breakdown?
Each time that the SPY ETF has decisively broken below (June 10th) or above (July 19th) the $390 level, it has created powerful momentum in the direction of the break. Now that the $390 level has converged with the June-to-September trendline, the level is likely to generate immense force on the next market catalyst.
Unless major news breaks between now and next week, that catalyst will likely be the September CPI Report. An optimistic read on inflation could be the motivator that the market needs to retest the 200-DMA and the August 16th high. On the other hand, a pessimistic read on inflation could be the spark that sets the market ablaze, quickly sending it back to the $362.17 June low.