Is SPX500_m primed for a breakout?

• "Ascending triangle" pattern seen on SPX500_m 
   
• Technical signs point to near-term breakout
   
• Historically, upside breakout has 83% chance of succeeding
   
• Wednesday's Fed policy decision may trigger major move

 

We’re detecting a “squeeze” in the SPX500_m on the daily chart.

Ahead of major central bank meetings in the coming days, the benchmark US stock index is coiling into an ascending triangle.

The 4525 line has acted as resistance in recent sessions, while support can be seen along the the upward trendline since mid-August.

Furthermore, we see this index’s’ 21-EMA and 60-EMA squeeze/contract with the last 2-days closing values within these moving averages.

All these are pointers that this cap- weighted index is primed for a breakout.

 

Although an ascending triangle can break out either way, to the up- or downside ...

Statistical data has shown that an upward breakout tends to have the better performance.

Historically, an upside breakout, across instruments, has just a 17% chance at failing.

To the downside breakout fails 24% of the time.

NOTE: The stats above are according to Thomas Bulkowski’s Encyclopedia Of Chart Patterns.

In other words, an upside breakout typically has a greater than 80% chance of being sustained.

 

Away from the price charts …

All eyes are on the U.S. Federal Reserves’ rate decision due tomorrow (Wednesday, September 20th).

It is anyone’s guess what signals the Fed will give.

The US central bank's policy outlook remains clouded by, on one hand, the risk of revived inflation thanks to resurgent oil prices, while on the other hand, policymakers must consider the demand-destruction intended by these rate hikes.

As markets digest any policy signals out of the Fed meeting, traders may then look to technical levels for guidance.

Leading into tomorrow’s rate hike decision, bulls will be looking for a strong close above:

• 4471.4: 21-day EMA
   
• 4479.0: 23.6 Fibonacci level

Bulls will be looking to ride dovish signals out of the Fed to spark an upside breakout, with the aim of punching above the earlier-mentioned 4525 resistance.

A strong close above the 4525 level would see bulls licking their chops in anticipation of a move to revisit the year-to-date high at 4611.8.

 

On the other hand ...

Bears may revel in hawkish Fed comments and will be looking for a close below:

• 4441.7: 60-day EMA
   
• 4435: ascending triangle’s support line

Further south, potential support may arrive at:

• 4396.9: 38.2 Fibonacci level
   
• 4330.5: 50 Fibonacci level

The Fibonacci levels used here are drawn from the lows of 4049.2 posted on May 4th to the highs of 4611.8 posted on August 27th.

This also marks the 3rd impulse move from the Elliot wave count which commenced in mid-March.

 

 

S&P 500 Technical Analysis Federal Reserve rate hikes