S&P 500 positioned for a false breakout post-FOMC: BTIG
The odds for a 50 basis points rate cut at the upcoming Federal Open Market Committee meeting were hovering around 50% following Friday’s market close, marking a sharp increase from earlier in the week when the probability was as low as ~12%.
“A move to the top side of the rising trend channel would be ~5800, although we don’t think it gets that high before potentially some giveback into early October,” strategists said in a Sunday note. However, they caution that following Wednesday's announcement, there might be a"set-up for a false breakout." "For one, SPX is coming off its best week of the year. While that follows the worst week, there was still a lot of buying in the days leading up to the decision,” strategists wrote."Often times you can get a 'sell the news' reaction in that environment." They also pointed out that momentum is likely to show a negative divergence compared to the highs seen in July. Despite early volatility in the month, the S&P 500 is essentially flat month-to-date, and BTIG points to the seasonality of the back-half of September through early October as historically weak. This aligns with the potential for a false breakout, which could create an opportunity for buyable weakness in October, just ahead of the U.S. Presidential election. The investment banking firm drew parallels to September 2007, when the Fed initiated its rate-cutting cycle, but highlighted a key difference that credit spreads had already been widening for six months back then. Now, the spreads are relatively stable, suggesting that further deterioration would be needed for a more direct comparison. Meanwhile, BTIG notes the potential for small-caps to break out of their current range, which they had been advocating for last week. Still, it remains uncertain whether the breakout could be sustained.Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks. Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes.and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website. It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
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