Weekly Summary: S&P 500 is Afloat, Waiting for the Fed

The decline of the S&P 500 broad market index stopped at 4145 points. This point is right in the middle of the possible downside targets which are within an aggressive downward pattern this week. The index rebounded to 4270 points. If it closes Friday above 4190 points, a strong rebound next week could be possible.

For this to happen the Federal Reserve (Fed) should be more afraid of the recession than galloping inflation. This scenario could be justified after the U.S. GDP unexpectedly plunged by 1.4% in Q1 2022. This may be a reason for the Fed not to rush with a decision on monetary tightening during its meeting on May 3-4. This does not mean that a probable cyclical drop of the U.S. stock market over the next 8-12 weeks is still not in the cards. Moreover, such a move by the Fed may create the perfect ground for such a scenario to take place. The market is less inclined to decline once retail investors see the horrible GDP fall and this week’s corporate earnings reports, which could cause the market to plunge down further, while large institutional investors could bet on a rebound. So, a tactical move by the Fed to hold monetary tightening for a future date would calm retail investors.

An aggressive downward pattern on the S&P 500 index is intact. But if the index closes this Friday above 4190 points, this level would become a strong support for the whole of next week. Technically, next week may provide good opportunities for a rebound of the stock market. Thus, short positions that were opened at 4480-4530 should be at least reduced by half. If the index closes this week below 4190 points, the downward pattern may be extended to 3850-3900 points and even further to the 3400-3500 level. In this case the remaining part of short positions would be quite useful.

Brent crude prices are levitating towards the resistance level of $112-115 per barrel. In case of a breakthrough of this resistance level, the upside scenario with targets at $160-180 per barrel will be activated. The European Union is seen to be closing in on a Russian oil ban that may be imposed in the middle of May. This looks like perfect timing as the oil from U.S. strategic reserves and from U.S. allies would flood the market. Technically, it seems like a good time for such an upside scenario.

Gold prices failed to touch the support at $1840 per troy ounce and rebounded from $1870 per ounce to the $1916. The favourable downside period for weak gold prices is over and the next bearish start line may emerge at the end of May. The nearest resistance level so far is located at $1940 and $2000 per ounce. This could be the targets for which gold prices are headed.

EURUSD has reached an extreme downside target at 1.04500-1.05500, however another downside spike to 1.03500-1.04500 may be possible before a good chance of a strong rebound emerges. So, it is better to be prepared to open long positions for the Euro next week.

GBPUSD also plunged this week to reach an extreme low at 1.24100. No new lows have been seen at the moment. So, next week good buy opportunities may emerge with targets at 1.27800-1.28000.