"Higher for longer"

Yesterday, Federal Reserve (FED) raised interest rates by 25 basis points. During the press conference, Jerome Powell reiterated the central bank’s commitment to fighting inflation and getting it back to 2%. The chairman noted that the economic activity expanded moderately and that growth and consumer spending slowed from earlier in the year. In regard to the housing sector, he said that “although the activity in the housing sector picked has picked up somewhat, it remains well below levels a year ago, largely reflecting higher mortgage rates.” Then, he said that the labor market stays strong despite signs of supply and demand returning to balance. When asked what the next steps in the FED’s monetary policy would be, Jerome Powell replied that all would depend on future economic data. Furthermore, he acknowledged sticky inflation and the possibility of more rate hikes in the future, once again signaling “higher for longer.”

In spite of much uncertainty ahead, the relatively ambiguous tone of Jerome Powell calmed down the market, which erased much of its losses by the close. It seems the theme of “higher for longer” will continue to play out also in the stock market valuations (probably until there is a substantial uptick in unemployment and reacceleration of inflation). As a result, we will pay close attention to the resistance at $4,600. If the price breaks above this level, it will be bullish for the short term; in such a scenario, we will monitor another resistance level near $4,637 and its ability to halt the rising price. Regarding technical indicators, RSI and MACD recently showed some divergence on the daily time frame. Additionally, RSI reached an overbought level. If RSI breaks below 70 points, it might coincide with the trend reversal. Therefore, we are starting to be very cautious.

Illustration 1.01
Illustration 1.01 displays the daily chart of SPX and RSI. Yellow arrows indicate the divergence between the price and RSI.

Illustration 1.02
Illustration 1.02 portrays the daily graph of SPX and MACD. Yellow arrows indicate the divergence between the price and MACD.

Technical analysis gauge
Daily time frame = Bullish
Weekly time frame = Bullish
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.

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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.