US Indices Remain Indecisive Ahead of a Massive Week

US EQUITIES TALKING POINTS:

FORECAST: NEUTRAL

• SP 500 Had a Back-and-Forth Week as the Indecision in Markets Continue.
• Nasdaq 100 Eyeing Triangle Breakout Ahead of the FOMC Meeting as Global Demand Concerns Heat Up.
• Federal Reserve Meeting and Auto Workers Strike Will be the Key Drivers Heading into Next Week.

READ MORE: GBP Price Action Setups: GBP/USD, GBP/AUD on the Back Foot Ahead of Massive Week

US INDICES AND GLOBAL MARKETS WEEK IN REVIEW

US indices finished the week with a poor showing surrendering its early week gains and on course to finish flat. This seems to be a recurring theme of late as markets appear unable to hold onto gains or losses with immediate recoveries in both directions. This indecision looks set to continue in the short-to- medium term as uncertainties around the Globe and diverging central bank policies threaten to derail what has thus far been a decent year. US Markets and Indices have enjoyed a stellar year but there are signs the good times may be at an end.

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The S&P 500 and Nasdaq 100 have both enjoyed stellar rallies in 2023 as the correlation between the two continues to grow. This in light of the growing dominance of mega cap tech stocks weighting on the SPX as the rise of AI boosted the tech sector in 2023. This past week has seen market conditions globally show serious signs of deterioration while the US economy begins to show a few cracks despite the robust nature of some of the data. The US is expected to face some tougher questions in Q4 as the end of the student debt exemption falls away. The rise in energy prices which was largely responsible for the uptick in this week’s CPI numbers also hint at the potential for inflation to remain sticky. This was a factor that no doubt played on the minds of the ECB ahead of a surprise 25bp hike this week. The lack of bullish momentum following the rate hike could be seen as a sign that that market participants believe the ECB may be overtightening as the European economy stumbles.

US indices for their part rose well in the early part of the week thanks to an improvement of sentiment as well as a continuation of strong US data. Sentiment did take a bit of a knock ahead of the US inflation data and a bit of a poor reception to the Apple product event before roaring to life on Wednesday and Thursday in particular. Global sentiment also receiving a boost thanks to a successful Arm IPO and the Peoples Bank of Chinas (PBoC) decision to cut the reserve ratio requirement. However, Friday saw a sharp selloff which I believe is largely a result of Profit taking ahead of a massive week of data as well as some selling in chipmaker stock on demand concerns. A rise in US Treasury Yields also weighing on US stocks ahead of the weekend.

FED MEETING AND RISKS FOR THE WEEK AHEAD

Stock indices face an interesting week as the FED meeting will no doubt take center stage. It seems a given at this stage that we will get a pause from the FED and market participants will likely be more interested in the FED guidance and future projections as well as the comments by FED Chair Powell. I will be particularly intrigued by the FED outlook on inflation given the upgraded forecasts by the ECB who raised their expectations and given the uptick in US inflation and the current rally in oil prices.

Also throwing a spanner into works, on Friday news broke regarding a strike by the Union of Auto Workers (UAW). The strike is expected to begin with 12.7k workers at three plants with workers from Ford, General Motors and Stellantis set to take part. The worry stems from the fact that the strike could impact as much as 146k workers by next week which could impact upto 46% of US auto production. According to reports on Bloomberg, a 10-day UAW strike would reduce US GDP by $5.6 billion, with a strike longer than a few days sending Midwest States into a recession.

September is a notoriously sticky month for US indices and the indecision and inability to hold onto gains threatens another year of disappointment. Any hawkish signal from the FED at next week’s meeting or an upgrade to inflation forecasts could weigh on US indices as in my mind at least the fight against inflation remains far from over.

Here are the four high ‘rated’ risk events for the week ahead on the economic calendar:

• On Tuesday, September 19, we have Preliminary Building Permits due at 12h30 GMT.
• On Wednesday, September 20, we have the FED Rate Decision and Economic Projections Release due at 18h00 GMT.
• On Wednesday, September 20, we have the FED Press Conference which could prove to be bigger than the actual Rate Decision due at 18h30 GMT.

For all market-moving economic releases and events, see the DailyFX Calendar

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TECHNICAL OUTLOOK

From a technical perspective the S&P on a monthly timeframe printed a massive hanging man candle close in August and as we are midway through September appear to be following through. Attempts to the rally higher of late have been met by selling pressure as acceptance above the 4500 mark has proven difficult since breaking below at the beginning of August.

It must be noted of course that we have also failed to push significantly lower with the initial break below the 4500 mark reaching support at the 4350 handle. We have an area around the 4550 mark which may be tested before a continuation to the downside as we did have a gap over the 1st and 2nd of August.

On the daily timeframe below, we are also trading within a triangle pattern with a downside break leading to a retest of the 100-day MA around 4375 before support at the 4325 mark comes into focus.

Key Levels to Keep an Eye On:

Support Levels:

• 4400
• 4375 (100-day MA)
• 4350 (Swing low)

Resistance Levels:

S&P 500 Daily Chart

Source: TradingView, prepared by Zain Vawda

The Nasdaq 100 is a close mirror image of the SPX chart given the growing correlation in movements during 2023. Also currently confined to a triangle pattern and closer to a breakout than the SPX, price has broken below the 50-day MA. Monday could prove key here and define price action ahead of the FED meeting on Wednesday. A break and daily candle close below the triangle pattern will bring a retest of the 100-day MA resting at the 14815 handle which coincides with the August 24 swing low and could prove a tough nut to crack.

Alternatively, a break to the upside will see the 16000-handle come into focus and a potential retest of the 2021 and all time-highs at 16757 come into focus once more. This however does seem a bit unlikely at this stage given the signs of deterioration around the global economy.

NASDAQ 100 Daily Chart

Source: TradingView, prepared by Zain Vawda

Key Levels to Keep an Eye On:

Resistance Levels:

• 15500
• 16000
• 16757 (All-Time Highs)

Support Levels:

— Written by Zain Vawda for DailyFX.com

Contact and follow Zain on Twitter: @zvawda