The S&P
500 index has finally changed its upside pattern to the downside after a recent
decline to 4585 points. At this point such a change was very unfortunate since
a new downside pattern would almost certainly lead to a decline of the index to
4350-4400 points by the middle of next week.
There are
many reasons for such a 5-7% decline this week. First, the Federal Reserve’s
(Fed) Chairman Jerome Powell will testify on Tuesday before the Banking
Committee in the Senate in order to get a clearance for his next term. Mr.
Powell has received a carte blanche for the White House to tackle inflation and
may easily give a hawkish testimony to secure his position in the Senate. And
this could well be the first sign that will begin the stock market’s decline.
Secondly,
consumer inflation data in the United States in 2021 may overshoot the
forecasted of 7.0%, bringing it to a record high not seen since early 1982.
Some indicators indirectly point towards increasing inflationary pressures that
may lead to additional monetary tightening measures from the Fed.
Another
portion of the producers’ inflation will be released this Thursday. The PPI
index is expected to rise to 9.8% year-on-year vs 9.6% y-o-y in November and
could also be considered as a reason for the Fed to tighten its actions. On the
same day the Senate Banking Committee will also hold a hearing with the Fed’s
vice-chair Lael Brainard. Mrs. Brainard might not bring forward a strong
hawkish rhetoric, but if she supports Powell in his anti-inflationary efforts this
could be enough to convince investors to continue their selloffs in the stock
market.
The key
support level for the S&P 500 index at this point is 4680 points, and this
seems to be sending out a distress signal. So, investors may open sell positions
at this point with a first target at 4580-4600, moving stop-loss lower along
with anti-inflationary statements made by the Fed’s seniors. There are no alternative
scenarios on the table at the moment as an unlikely spike of the S&P 500
index to 4770 points is needed, and that is highly unlikely.
The oil
market is standing tall with the technical picture confirming current high
price levels. Fundamentally, the current Brent prices which are at $81.00-82.00
per barrel are seen to also be justified amid fears of a possible oil
production halt in Kazakhstan as riots continue to terrify southern regions of
the country. The resistance level for Brent cure prices is located at $83 per
barrel while the support is at $79.50-80.20. However, some trades are possible
from these levels.
The gold
market is moving to the upside direction. But it is still too early to open
trades with a target of $1840 per troy ounce as some downside spikes could
appear by the end of January. Moreover, a recent surge in 10-year U.S.
Treasuries yields may initiate corrections in gold prices at any time now
towards $1750 per ounce.
EURUSD has
finally cleared the path to the upside. Buy positions from 1.13100-1.13300 with
the target at 1.14300 by the end of next week are looking promising. The Euro
may even climb to the 1.15000.1.15200 area as a bonus target. Some small
corrections could occur at 1.13900 in the second half of this week, but they
should not be used for any sell positions.
GBPUSD has
moved on most of its upside path and now only the 1.37000 target is left. So,
it is better to avoid opening any buy positions without any correction to the 1.35000.1.35300
area. It is recommended that any buy positions previously opened should be kept
open until this final target is reached.