From "FED's pivot" hopes to a "strong labor market" excuse

Yesterday brought another interesting trading session, with the market being very complacent before Jerome Powell’s speech. However, as soon as he walked on the stage at the Economic Club of Washington, the market rallied. In the early minutes of the speech, SPX jumped up approximately 1.20%. Although, once the FED’s chairman mentioned ongoing rate hikes in the future, SPX slumped by almost 1.8%, bringing it into negative territory. Then again, a few minutes later, the market found its excuse in a strong labor market and rallied toward the end of the day. As a result, SPX closed 1.29% up for the day.

This market behavior continues to highlight a tense yet very optimistic mood among market participants, who are back to buying dips. Nonetheless, nothing changes in the big picture. The rally continues against worsening economic data (corporations being hit by a significant decline in net income in 2022, a slowdown in economic activity, declining consumer savings, slow growth of wages, etc.) and assurances of the FED to tighten economic conditions even more in 2023. Overall, the market sentiment seems to have shifted from investors looking for FED’s pivot to them focusing on strong labor market data.

Just like on previous occasions, we do not argue against the continuation of the rally in the short term. However, we continue to notice more and more problems in the economy and a growing disconnect between market expectations and reality. That casts a dubious shadow over the market’s performance in the coming months and moves us closer to a big repricing event. With that said, we stick to our price target on the downside for SPX in 2023 at $3 400.

Illustration 1.01

Illustration 1.01 shows the 1-minute chart of SPX.

Technical analysis
Daily time frame = Bullish
Weekly time frame = Bullish

Illustration 1.02

Illustration 1.02 displays the daily chart of SPX. If the price breaks above Resistance 1, it will bolster a bullish case in the short term; contrarily, if the price breaks below Support 1, it will hint at exhaustion in the rally.

Please feel free to express your ideas and thoughts in the comment section.

DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not be a basis for taking any trade action by an individual investor. Therefore, your own due diligence is highly advised before entering a trade.

Trade active:

Various media outlets run stories about inflation coming in hotter than expected for the first month of 2023. In about four hours, inflation data and CPI will be released. We will pay close attention to these figures.