The S&P 500 and Nasdaq 100 index have been rather muted building up to this weeks tech earnings extravaganza. Equity futures are looking to open in the red during early European trade due to market apprehension as global recessionary fears gain traction. In 2023 thus far, tech stocks and the wider SPX index ignored an aggressive monetary policy environment by the Federal Reserve but now with hawkish Fed speak seen last week, investors are unsure as to the Fed’s outlook moving forward. Money markets are currently pricing in a 25bps rate hike next week with an almost 90% probability – generally a negative for stock valuations as the value of future earnings looks less appealing.
The daily S&P500 index chart above shows a developing rising wedge chart pattern since mid-March 2023. This coincides with a momentum reading hovering around the overbought zone as measured by the Relative Strength Index (RSI). From a technical standpoint, this is rather bearish and a daily candle close below wedge support could spark a move lower.
Price action on the daily Nasdaq100 echoes similar sentiments to the S&P500 chart above in that the potential for a breakout this week is high. The rectangle pattern looks ripe for breakout after consolidating for a few weeks. This will be highly dependent on the upcoming earnings and US economic data. A confirmation candle close above or below rectangle resistance/support could give an indication of the direction markets want to take the index short-term.
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