S&P 500 Technical analysis: Powell goes on a bear hunt

Yesterday was a big day for the chartists where it looked like the bears were finally going to wrestle back control of the S&P. Since the March 2020 lows the bulls have firmly had the upper hand with stimulus measures and renewed optimism leading the way. Tech led the way with the big beasts of the plain leading all indices higher.

But suddenly bears had found a stick to ward off the bulls. Inflation was rising, US10 Year yields were at year highs, global inflationary pressures looked to be increasing. The era of unlimited money and low-interest rates was about to come to an end. Bears sensed the opportunity and pushed the open on Tuesday below the S&P 500 21 day moving average. An ugly open and it looked set to get worse. Trend line support from November was breached with 3700 insight as the first target for bears to take out 2021 low so far and break the uptrend for good!

So what happened next? Well, Fed Chair Jerome Powell is what happened and he turned markets on their head and put the bears to the sword. "The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved," he said. "Monetary policy is accommodative and it continues to need to be accommodative ... Expect us to move carefully, patiently, and with a lot of advance warning," Powell also said.

Markets took that as hints that policy was not likely to change any time soon and markets would continue to be boosted by loose policy and fears over rate rises and inflation faded into the background....for now. Powell also said he saw the economy expanding in the range of 6% this year. While impressive such growth is hard to achieve without inflationary pressures.

So where to from here

Well the S&P 500 now sits at a key level. Having failed on the open to push through trend line support and indeed closed back above the 21 day moving average, bulls may be incentivized to push back to new highs. Key for Wednesday will be remaining above 21 day Moving average. The long tail candle yesterday may give further momentum to the bulls but with ADX and other momentum indicators slowing any consolidation around current levels is likely to give bears more time to regather and push lower.