Is SPX Ready For Takeoff?
Mike Paulenoff | Mar 18, 2019 01:55PM ET
Is the S&P 500 (SPX) on the verge of a sustained upside breakout as it pushes through multiple prior failed rally peaks just above 2800?
This week should provide some answers.
Actually, a sustained climb above 2832 (on a closing basis) also will answer the question we have been asking in these weekly articles for the past four weeks: Will the powerful advance from the Dec. 26 low at 2346.58 be stymied in the 2775 to 2832 resistance zone?
This zone is the area that measures 76.4% of the entire prior Sep.-Dec. correction – what we're calling the "Fibonacci Recovery Price Resistance Zone" – and in the last 20 trading days the SPX has probed but failed to hurdle the upper boundary (2832) of this zone no less than five times!
As we enter a new week, this upper price boundary remains intact, although the Fibonacci measurement of when this boundary should be taken out has changed. Last week’s SPX rally from 2722.27 to 2830.73 invalidated my 76.4% Fibonacci time parameter, which signifies that the time spent in the recovery rally from the Dec. 26 low was equal to 76.4% of the time spent in the Sep. 21 to Dec. 26 correction.
This "Fibonacci Recovery Time Resistance Zone" now shifts to the first week of April, when the time spent in the post-December rally will equal 100% of the Sep.-Dec. correction.
A bullish scenario for the SPX technically seems like a done deal, a slam dunk, despite SPX already having climbed 20% in just 10 weeks. That said, much of the post-December advance has coincided with Fed and central bank “intervention.” One look at the SPX chart we've included shows the impressive “V-Shaped Bottom” overlaid with my annotations of central bank jawboning (aided and exacerbated by algorithmic buy programs after December 26). Starting on Jan 4, with Fed Chair Powell’s backpedaling on the FOMC’s original plan for 3 or 4 rate hikes during 2019, it certainly appears that a steady stream of accommodative statements (jawboning) by the Fed, the PBOC (China Central Bank), and the ECB (European Central Bank) preserved, supported, and propelled SPX higher.
Indeed, exactly one week ago, after a period of 5 consecutive down-days, Chairman Powell reiterated to Scott Pelley of 60 Minutes that nothing in the outlook demands an immediate policy response, and the central bank has adopted a patient, wait-and-see approach. Powell also commented that he does not see any reason why the economy cannot grow in a healthy manner for years to come.
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With Powell’s Goldilocks comments coming right as the equity futures markets reopened last Sunday evening (March 10), the e-Mini S&P futures rocketed out of the blocks and never looked back for the entire week. Even discouraging news about a U.S.-China trade deal failed to derail Fed-inspired price action. While some market-watchers suspected that Quadruple Witching March Futures and Options Expiration may have played a role in last week’s 4% upmove, Fed Chair Powell’s comments initiated the strength last Sunday night.
This week's reopen after Friday’s March OPEX and index rebalancing will be interesting, but the Fed will not be a factor because all Fed Heads must remain mute ahead of Wednesday's (Mar. 20) FOMC meeting. Yes, the Fed meets again this week to issue a policy statement chock full of potential market-moving information, about topics such as the health of the economy, the absence of inflationary pressures, a time schedule for ending Quantitative Tightening and likely changes in the infamous Dot Plot of member rate expectations for the rest of this year and beyond. While Fed watchers and traders are parsing out this information, there is the always intriguing Powell press conference to look forward to.
Clearly, Wednesday afternoon the markets could have additional information to determine if the Powell Fed is leaning “more Dovish” than it was after its January 30 meeting, when its rate outlook flipped 180-degrees, from 3 to 4 hikes to wait-and-see for 2019.
While Wednesday’s FOMC Meeting undoubtedly will be the focal point of investors and traders, and could lift equity prices in anticipation of a more dovish perspective from the Fed, there are other potential market catalysts.
On Tuesday, President Trump welcomes admirer and newly elected Brazilian President Bolsonaro to the White House for a chat and for a press conference that has the potential to be wild and crazy.
Also on Tuesday, after the close, FedEx (NYSE:FDX) reports earnings and guidance, an economic bellwether name that has exhibited an extremely dismal performance since its 274.66 high in January 2018. Last Friday, FDX closed at 177.98.
Wednesday is Fed Day.
Finally, news, tweets and leaks about a China trade deal and the Mueller report will continue to loom large every day.
Let’s strap ourselves in for a potentially volatile and technically consequential week. As for levels, all eyes on a closing level of 2832 (my 76.4% Fibonacci Recovery Price Resistance Reversal/Acceleration level), which if hurdled points to 2880 next, and could trigger potential for upside continuation and acceleration that leads to a retest of last September’s all-time highs heading into early April.
On the downside, inability to close above 2832.00 followed by a decline that breaks 2803.50 will be a potentially very negative omen.
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