Market Reacts to Fed Speak

Over the weekend, the bearish sentiment started to brew. There was a gap down in the S&P 500 futures stemming from the news of Covid-19 protests erupting throughout China. This information weighed heavily on the global market sentiment as Wall Street returned from a holiday weekend.

Once the opening bell sounded, there was some profit taking early. The upside action was aggressive out of the gate but did not last long. Indexes ran straight into pre-market resistance and were rejected. 

After the opening push ended, profit-taking subsided, and the market started to trickle lower. This was a very controlled sell-off, with a clear downtrend established throughout the day. 

Fed speakers dampen mood

At noon Eastern Federal Reserve (Fed) speakers took the mic and added to the negative sentiment. St. Louis Fed President James Bullard confirmed that interest rates have a “ways to go.” Bullard then doubled down on his comments by stating, “Fed will have to pursue rate hikes into 2023”. 

This is significant because the market had previously rallied on news that the Fed may be lowering rates before the last Federal Open Market Committee (FOMC) meeting. 

Then Federal Reserve (Fed) Chairman Jerome Powell stepped to the podium and let the market down, stating that lowering the rates would not happen this time, as they would continue a hawkish outlook. 

As we head into the December FOMC meeting, history could repeat itself. The market has taken a similar approach heading into the December meeting and could just as easily be knocked off its high horse if the Fed declines to lower rates again. 

At the closing bell, the market pushed back toward the point of control (POC) level. As we head into Tuesday’s session, this level will be a good line in the sand for the market. POC is right at 3,973 on the S&P 500 futures. The vulnerability will rise if the market continues to trade below this level. 

Targets for tomorrow 

On the downside, 3,960 was a level that kept the market range bound over the last week, so breaking this would be significant to any downside movement. A break of 3,960 can trigger a more extensive continuation leading the market to the 15-day simple moving average (SMA) at 3,950 and the 21-day exponential moving average (EMA) at 3,926.

On the upside, if the S&P 500 futures can trade back above 3,973, then a retest of the psychological level of 4,000 makes sense. 4,000 would be the first target to the upside, and 4,020 would follow. If the market can recover, a big target to the upside will be the 200-simple moving average (SMA) at 4,056.

Market starts the week off negative

The Nasdaq and the S&P 500 were negative to close the session. The S&P 500 futures closed down 1.53%, losing 61 points, while the Nasdaq futures closed down 1.38%, a loss of 162 points. The Dow Jones futures followed, closing down 1.46%, declining 500 points.