S&P 500 has been consolidating tightly for the past few weeks. Is there something ahead to wake traders up, and will it be enough to break the triangle pattern?
S&P E-mini Futures (SPX500): 4-hour
If you’ve ever wondered what it’s like to watch a symmetrical chart pattern forming, then you’re in for a treat. And if you haven’t, well, you’re still in for a treat because we’re about to break down a potential setup for both bull and bear swing traders!
On the four-hour chart, we’ve got a symmetrical triangle chart pattern that’s been dancing around the 4500 major psychological level since the beginning of August.
This price pattern can sometimes precede a volatile breakout, usually with the help of a major fundamental catalyst. And that major catalyst this week is the latest interest rate decision from the Federal Reserve!
Yup, the Federal Open Market Committee (FOMC) is about to drop its latest monetary policy statement, and it’s like waiting for the grand finale of a fireworks show. Will they announce a rate hike? Will they hint at one in the near future? Or will they leave us hanging like a suspenseful season finale of our favorite TV series? The market is on the edge of its seat, and traders are clutching their lucky rabbit’s feet, hoping to make sense of it all.
We’re not hear to predict the outcome of that event (but you can read more about it with our Event Guide), but here are couple of behavior patterns to take into consideration before creating your own risk management plan if you’re looking to play the event.
Now, let’s talk about those daring sellers. If we see a sustained break below the rising ‘lows’ pattern, it could be like a bullhorn sounding for the bears to come out and play.
And based on the the daily average true range of 48 points, the August lows is a feasible target if the Fed sparks big risk-off / pro-USD moves this week.
For the bulls, they’re likely eyeing that 4535 – 4550 resistance zone marked on the chart above like it’s the last piece of pizza at a party. If they can break through and hold their ground, that may draw in more technical bulls as well as give confidence to fundamental bulls looking to play the longer-term trend higher.
And if the Fed drops a bombshell of good news, well, we might just see a bullish frenzy take the market all the way up to the July – August peak area between 4600.00 – 4630.00 within the week, again based on the daily average true range of 48 points.
So, we have areas and behavior to watch out for both sides, and now it’s time to sit back and wait for a potentially wild ride. So, grab your popcorn, keep an eye on those levels, and remember that risk management is the most important part of a trade idea. Take your time when crafting your plan, especially with potentially volatile events like the FOMC statement.