Index Posted Seven Consecutive Winning Trading Sessions Ahead of Rate Decision

Source: TradingView.com
Source: TradingView.com

Key Takeaways

  • The S&P 500 will remain in focus on Thursday after the index closed slightly lower following the Federal Reserve’s decision to slash its benchmark rate by 50 basis points.
  • Since establishing a record high in mid-July, the index has oscillated within a symmetrical triangle, a chart pattern that typically precedes a breakout in price. 
  • Investors should monitor important downside targets on the S&P 500’s chart at 5,265 and 4,950, while eyeing 6,300 as a potential upside target.

The S&P 500 (SPX) will remain in focus on Thursday after the index staged an intraday reversal to close slightly lower today. This move followed the Federal Reserve’s decision to slash its benchmark fed funds rate by 50 basis points, marking the first rate cut since March 2020. 

Prior to Fed’s rate decision, the index had posted seven consecutive winning trading sessions as investors started pricing in the possibility of a more aggressive half-point cut after economic data over the past month signaled a softening labor market and cooling inflation.

Below, we’ll take a closer look at the S&P 500’s chart and use technical analysis to point out key levels worth watching out for.

Symmetrical Triangle Takes Shape

Since establishing a record high in mid-July, the S&P 500 has oscillated within an orderly symmetrical triangle, a chart pattern formed by trend lines connecting a series of sequentially lower peaks and higher troughs that typically precedes a breakout in price. 

However, Wednesday’s intraday reversal created a bearish shooting star near the triangle’s top trendline. A shooting star is a candlestick pattern that forms when a security or index rises significantly, but eventually gives up those gains to close near the day’s open.

The S&P 500 closed 0.29% lower at 5,618.26 Wednesday.

Given those mixed signals, investors should monitor several important chart levels.

S&P 500 Downside Targets to Monitor

The first lower level to eye if a downside breakout takes place sits around 5,265. This location on the chart may provide support near a trendline that connects the March highs with comparable trading levels in May and early August. Depending on the timing of the move, this area may also closely align with the rising 200-day moving average.

A deeper retracement could see the index fall to the 4,950 level, a region that investors may perceive as a value buying area near a horizontal line linking a range of price bars throughout January and February with the prominent April swing low. Such a move would represent a correction of about 12% from Wednesday’s close.

S&P 500 Upside Target to Watch

Given the index trades near its all-time high (ATH), we can also forecast an upside target by using the measuring principle, also known as the measured move technique. 

To do this, we calculate the distance of the symmetrical triangle near its widest point and apply that amount to the pattern’s top trendline. For instance, here we add 650 to 5,650, which projects an upside target of 6,300.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info.

As of the date this article was written, the author does not own any of the above securities.

Read the original article on Investopedia.