Source: PaxForex Premium Analytics Portal, Fundamental Insight
After a heavy week of selling, SP500 futures suggest a positive start amid bottom-fishing by long-term value investors who want to add positions using dollar-cost-averaging (DCA) strategies. Comments by US Fed Chief Powell about interest rates likely going higher and remaining there for longer due to higher-than-hoped inflation and rising inflationary pressures spooked markets. The collapse of Silicon Valley Bank, the second-largest bank collapse in US history, added to fears about the health of the financial system, especially among smaller regional banks and those highly centralized.
Silicon Valley Bank catered to the start-up tech sector for over 40 years, but since the US central bank began raising rates, the value of US Treasuries plunged. It forced Silicon Valley Bank to announce a surprise cash shortfall amid a $1.8 billion loss on asset sales last Wednesday. The FDIC stepped in and closed the bank Friday. Regulators also shut down crypto-focused Signature Bank, and its crypto-peer Silvergate Bank could follow. It does not resemble the financial crisis of 2008. It raises concerns about the economic damage the US Fed causes and is willing to accept to combat inflation it has created.
A loss in confidence about the Fed policy and its impact on the financial system could ignite a more aggressive sell-off. Economic indicators, besides job data, paint a bearish picture and sends conflicting reports. Should SP500 futures narrow their gains until the open, the sell-off may resume, and investors should brace for another week in the red. Volatility should increase, and the short-term concern lies within the regional banking sector across the US. More bank failures could result in the US Fed pausing its current campaign, allowing inflation to accelerate higher and extending the ongoing downside pressures on the economy.
The forecast for the SP500 remains bearish after this equity index broke through its flat Ichimoku Kinko Hyo Cloud. Volatility could rise with the Tenkan-sen flat as the Kijun-sen extends its moderate downside drift, adding selling pressure. Traders should also monitor the CCI after it recorded a lower low in extreme oversold territory. This technical indicator could complete a false breakout, and traders should wait for it to unfold and reverse before adding new short positions. Can bears maintain selling pressure and force the SP500 into its horizontal support area and fresh 2023 lows? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Should price action for the SP500 Index remain inside the or breakdown below the 3,890 to 3,960 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 3.930
- Take Profit Zone: 3.490 – 3.580
- Stop Loss Level: 4.010
Should price action for the SP500 Index breakout above 3,960, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 4.010
- Take Profit Zone: 4.075 – 4.120
- Stop Loss Level: 3.960
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