S AND P 500 PRICE FORECAST:

• US CPI Weighs on Equities as the SP500 Grapples with a Death Cross Formation.
• US Long Term Yields Rise Supporting the Fed Narrative.
• US Bank Earning in Focus with JPMorgan Chase, Wells Fargo and Citigroup All Reporting Tomorrow.
• To Learn More About Price Action, Chart Patterns and Moving Averages, Check out the DailyFX Education Section.

US Indices have run into trouble thanks to a combination of key resistance levels and a sticky Inflation print. The inflation data actually came in rather mixed in my opinion with the headline inflation number remaining at 3.7% but above estimates of 3.6%. Core inflation YoY however fell to a 24-month low of 4.1%.

POST US CPI OUTLOOK AND BANK EARNINGS

Despite the mixed nature of the US inflation data the US Dollar received a strong bid today as well as a sharp rise in long term US treasury yields. Now looking at the reaction and what I think has been the driving force of the rise in the US Dollar as well as the selloff in US equities comes back to Fed policymaker comments this week. A dovish tone was set for the majority of the week which kept the US Dollar on the back foot.

Comments from Rafael Bostic yesterday however may explain some of the moves today. Bostic said the stalling inflation could force the Federal Reserve to “do more”. Today's print from a headline perspective can definitely be called sticky while with long term yield rates rising aggressively, even if the Fed do not hike rates again, today’s data still supports the narrative of “higher rates for longer”.

US 2Y and 10Y Yield Chart

Source: TradingView, Created by Zain Vawda

Another explanation of the selloff in the S&P 500 could be down to some profit taking from the recent upside rally ahead of US bank earning due tomorrow. This however doesn’t seem likely as Bank earnings are expected to be positive owing to the higher rate environment which has allowed banks to rake in a substantial amount of revenue over the last 18 months.

Either way markets will surely be keeping a close eye tomorrow on earnings season, with big banks including JPMorgan Chase, Wells Fargo and Citigroup reporting their quarterly numbers before the bell on Friday. We also have Michigan Consumer Sentiment data (Prel) due for release and we will hear more comments from Fed Policymaker Harker tomorrow as well.

ECONOMIC CALENDAR

For all market-moving economic releases and events, see theDailyFX Calendar

S&P 500 TECHNICAL OUTLOOK

Form a technical perspective, the S&P has bounced off a key area of support before rallying some 200 points toward the key resistance level resting at the 4400 mark. A further challenge for the S&P is the completion of a death cross pattern which would hint at further downside ahead as the 50-day MA crossed below the 100-day MA.

The price remains compressed between the moving averages as they are spread within a 180-point range. At the time of writing the S&P has put in a slight bounce of the 20-day MA and remains on course for a bearish close with losses currently at 0.95% on the day.

Key Levels to Keep an Eye On:

Support levels:

• 4333
• 4280
• 4200

Resistance levels:

• 4400
• 4411
• 4459

S&P 500 October 12, 2023

Source: TradingView, Chart Prepared by Zain Vawda

IG CLIENT SENTIMENT

Taking a quick look at the IG Client Sentiment, Retail Traders have shifted to a more dovish stance with 50% of retail traders now holding long positions compared to 57% a day ago.

https://www.dailyfx.com/news/s-p-500-slides-as-us-yields-rise-post-cpi-more-downside-ahead-20231012.html