S&P 500 (ES, SPY) Technical Forecast: Trendline holds as buy the dip still the only gig in town

Update: Markets looks to start the week in a positive tone and shake off the seasonality effects associated with the end of June. Historically the last two weeks are one of the worst-performing periods for the stock market. Mondays sees some optimism to start with,and the S&P 500 rising 1% in early trading. In the process, the futures contract (ES) and the Exchange Traded Fund (SPY) hold the trendline support identified in the daily chart below. Buy the dip still works!

The Fed did what it could not avoid and brought forward its projected interest rate hiking cycle and in the process gave markets the excuse they needed to sell off. Equity markets had been expecting and dare we say hoping the Fed would act on inflation before it was too late and this is what the Fed had to do. Equity markets took it relatively calmly on Thursday, but the mood soured on Friday as the Fed's James Bullard talked tough. The market took Bullard's testimony badly despite the fact that he is a well-known Fed hawk. 

S&P 500 (ES, SPY) forecast

The lead futures contract has retreated to a strong support line at 4,155. This is matched in the cash and ETF (SPY) charts as they track almost exactly. Monday's session is increasingly important. Is "buy the dip" still the strategy to be following? Seasonality has been mentioned a lot recently, and it cannot be totally discounted. The last two weeks of June are historically tough ones for the equity market, so we are not only at a critical price juncture but a critical time juncture also. Friday's move saw the S&P break the 9 and 21-day moving averages, skewing the risk-reward to the downside. The momentum oscillators have trended lower with price in confirmation, and the Moving Average Convergence Divergence (MACD) has crossed into a bearish signal. The big level is 4,050 as volume drops off alarmingly below this as we can see from the volume profile bars on the right side of the chart. Any vacuum of volume could and should lead to a price acceleration toward the 3,950-3,900 area. 

Overall, "buy the dip" has been working. 4,050 is a good entry point if reached, with a tight stop as a break could get ugly. The more bullish could look to the trend line to hold and enter long positions, but we need the oscillators and short-term averages to be retaken pretty quickly to confirm this strategy.

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