Index in Focus: SPX 500
Joe Perry November 2, 2021 4:11 PM
The FOMC is expected to announce that they will begin tapering their quantitative easing program. What does that means for the S&P 500?
It’s the day before the FOMC is expected to announce that they will begin tapering their quantitative easing program. As discussed in detail in our FOMC Preview, the Fed is currently purchasing $80 billion in Treasuries per month and $40 billion in MBS per month. One suggested pace of the tapering is for $10 billion a month in Treasuries and $5 billion a month in MBS. This would be consistent with Powell’s previous comments that tapering would be finished by mid-2022. The S&P 500 made is at all-time highs near 4635, just above the 127.2% Fibonacci extension of the move from the highs of September 3rd to the lows of October 1st. But will it continue after the FOMC announcement?
Source: Tradingview, Stone X
More Hawkish statement
If the Fed is more hawkish than expected (i.e. a faster tapering pace or any mention of an interest rate hike timeframe), the S&P 500 is likely to pull back. First support is at the breakout level of the September 3rd highs at 4551. Below there is the 50 Day Moving Average at 4467.9, horizontal support at 4431.8, and the October 1st lows at 4272.2. Note that the RSI is moving into overbought territory on the eve of the FOMC meeting, an indication price may be ready for a pullback. In addition, on the daily timeframe, price has formed a bearish shark harmonic pattern, another indication price may be ready to move lower.
More Dovish statement
If the Fed is more dovish than expected (i.e. taper will happen soon, but no mention of the pace) , the S&P 500 may take off higher. First resistance is at the bottom trendline of the long-term upward sloping wedge near 4660. Above there is a confluence of resistance at the top trendline of the same wedge at the 161.8% Fibonacci extension of the move from the September 3rd highs to the October 1st lows.
“As expected” statement
If the Fed is neutral (i.e. taper announced, slow pace, tapering will end in mid-2022), stocks may continue bid. With the S&P 500 on its highs, an “as expected” statement would give stocks no reason to pause.
Don’t forget that Friday is Non-Farm Payrolls for October. The Fed doesn’t meet again until December 15th, at which time they will release a new Summary of Economic Projections. Therefore, they will have 2 more months of jobs data before their next meeting. If employment (or inflation) moves lower before their next meeting, there is always a chance the Fed puts the brakes on the tapering, which could send stock indices higher once again!
Learn more about index trading opportunities.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.