What To Watch For On The SPY Before And After Fed's Interest Rates Decision

The SPDR S&P 500 ETF Trust SPY opened lower on Wednesday ahead of the Federal Reserve’s monthly meeting, where the central bank is expected to implement a fourth consecutive 0.75% interest rate hike.

Consumer price index (CPI) data for September came in at 8.2%, exceeding economist estimates of 8.1%. The number indicates the Fed’s previous attempts to lower inflation haven’t been successful.

U.S. GDP grew 2.6% in the third quarter, ahead of the 2.3% estimate.

See Also: This Economic Indicator Jumps Ahead Of Wednesday Fed Decision On Interest Rates: What You Need To Know

On Wednesday, ADP reported U.S. companies added 239,000 jobs in October, exceeding economist estimates of 195,000 positions, which suggests the labor market continues to run hot.

JPMorgan Chase & Co. JPM analysts see the S&P 500 down 1% to up 0.5% if the Fed raises rates by 75 basis points and gives a hawkish press conference. If the Fed raises rates by 0.75% but provides dovish comments afterwards, analysts at the firm believe the ETF could rally between 2.5% and 3%.

According to CME Group, the bond market is pricing in a 90.2% chance of a 0.75% rate hike, up from an 88.7% chance on Monday.

Despite Tuesday’s and Wednesday’s decline, the SPY didn’t negate the uptrend it’s been trading in since Oct. 13, and if the ETF can hold above the eight-day exponential moving average (EMA) after the meeting a bounce is the most likely scenario.

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The SPY Chart: On Oct. 24, the SPY broke up from an inverted head-and-shoulders pattern, which according to the measured move indicated a 7% rally was on the horizon. So far, the SPY has completed about half of the suggested increase, rising a total of 3.5% to reach a high of $394.17 on Tuesday.

• The SPY’s most recent higher high within its uptrend was printed at that high-of-day Tuesday and the most recent confirmed higher low was formed on Oct. 27 at $379.33. If the SPY reacts positively to the Fed’s decision, the ETF may surge higher and print a hammer candlestick, which could indicate the uptrend will continue.
• If the SPY reacts negatively to the decision and falls under the eight-day EMA, a lower low could be on the horizon, which will negate the uptrend. If that happens, the SPY will also lose support at the 50-day simple moving average, which will indicate longer-term sentiment has turned bearish.
• The SPY has resistance above at $385.85 and $394.17 and support below at $381.30 and $371.48.

See Also: This Economic Indicator Jumps Ahead Of Wednesday Fed Decision On Interest Rates: What You Need To Know