In a week where we will get so many major central bank decisions, you would think the bond market is the key spot to watch. But as we look towards the Fed later today, I would be remiss not to highlight how pivotal a part the stock market could end up playing once the dust settles over the coming sessions.
In particular, the S&P 500 chart is one that is presenting some technical considerations that are rather important to pay attention to:
The buoyant open and push higher after the US CPI data yesterday ultimately failed to clear the key trendline resistance (white line) from the downtrend this year and that also saw price fall back below its 200-day moving average (blue line).
The former is now arguably the most critical point in any Santa Claus rally for stocks before the turn of the year. Meanwhile, any downside push is currently limited by support from the 100-day moving average (red line). It will take a break below that for sellers to really regain any potential downside momentum from this point, upon a defense of the above resistance levels that is.
The technical considerations above will play into how risk sentiment will push forward in the aftermath of the events this week. As such, it may not necessarily be a straightforward reaction in which we equate any dollar selling and bond market rally to a potential risk rally. I fear that it might be a case of equities having to vindicate the moves elsewhere and if they don't, that might spark some retracement in the dollar and bond market moves.
That is rather contrary to the phrase 'the bond market is always right', something I usually would ascribe to any potential event that will impact broader markets as a whole.