SP500 Tests June Lows

Nevertheless, as of writing, the SP500 index traded in a positive territory shortly after the Wall Street opening bell, having erased a huge intraday loss.

Wall Street is getting bearish

After Chair Jerome Powell repeatedly warned of economic “pain” in a speech last week, several Wall Street strategists believe that a recession is the Federal Reserve’s base case scenario as it continues with an aggressive rate-hike campaign to restore price stability.

However, Raphael Bostic, president of the Atlanta Federal Reserve, maintains his conviction that he and his colleagues can control inflation without seriously impairing the job market, according to his comments in a Sunday interview with CBS’s “Face the Nation.”

“I do think that we’re going to do all that we can at the Federal Reserve to avoid deep, deep pain,” Bostic said. “We’re still creating lots of jobs on a monthly basis, and so I actually think that there is some ability for the economy to absorb our actions.”

In light of this, investors will pay close attention to remarks made this week by individuals such as St. Louis Fed President James Bullard, Cleveland Fed President Loretta Mester, Chicago Fed head Charles Evans, and Fed Vice Chair Lael Brainard for hints as to whether a fourth consecutive 75 bps rate hike is anticipated for November.

Short-term outlook seems bullish

The key support to watch is at June’s lows at 3,650 USD, and it is unlikely that it will be breached on the first attempt. Therefore, short covering short squeeze rallies are expected to occur in the vicinity of that support.

The short-term resistance is near 3,750 USD; if broken to the upside, we could see another leg higher toward 3,800 USD. The oversold conditions could help bulls to stage a comeback.

On the downside, if the mentioned support of 3,650 USD is not defended, significant stop losses would be hit, likely dragging the price further lower toward 3,500 USD.