E-mini S&P 500 Index (ES) Futures Technical Analysis – Capped by Worries Over Faster Rate Hikes

September E-mini S&P 500 Index futures are edging lower shortly before the mid-session on Wednesday on worries over faster interest rate hikes despite data that painted a grim picture for the economy.

Prices are having a hard time gaining traction as investors fretted over the impact of an aggressive Fed tightening on the U.S. economy, as data released earlier today highlighted the contraction of the U.S. economy in the first quarter amid a record trade deficit following a Tuesday report that showed U.S. consumer confidence hit a 16-month low.

At 15:33 GMT, September E-mini S&P 500 Index futures are trading 3821.50, down 4.00 or -0.10%. The S&P 500 Trust ETF (SPY) is at $380.30, down $0.35 or -0.09%.

US Economy Contracts in First Quarter

The U.S. economy contracted slightly more than previously estimated in the first quarter amid a record trade deficit and supply chain disruptions, government data showed on Wednesday.

Gross domestic product fell at a 1.6% annualized rate last quarter, revised down from the 1.5% pace of decline reported last month. Economists polled by Reuters had forecast the pace of contraction would be unrevised at a 1.5% rate.

Powell Fuels Too Sided Trade

As we near the mid-session, the selling pressure appears to be fading. This could be the result of a mixed response to comments from Fed Chair Powell. He said there is risk the U.S. central bank’s interest rate hikes will slow the economy too much, but the bigger risk is persistent inflation.

Adding to the confusion, U.S. Treasury yields are falling in reaction to the weak GDP data.

The price action suggests investors aren’t sure how to interpret Powell’s comment combined with the drop in yields.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 3950.00 will change the main trend to up. A move through 3639.00 will signal a resumption of the downtrend.

The intermediate range is 4204.75 to 3639.00. Its retracement zone at 3922.00 to 3988.75 is resistance. This zone stopped the buying at 3950.00 on Tuesday.

The short-term range is 3639.00 to 3950.00. Its retracement zone at 3794.50 to 3757.80 is the next downside target.

Daily Swing Chart Technical Forecast

Trader reaction to the retracement zone at 3794.50 to 3757.75 is likely to determine the direction of the September E-mini S&P 500 Index into the close on Wednesday.

Bullish Scenario

A sustained move over 3794.50 will indicate the presence of buyers. If this move creates enough upside momentum then look for an intraday rally into 3875.50. Overtaking this level will set up another surge into 3822.00.

Bearish Scenario

A sustained move under 3794.50 will signal the presence of sellers. This could trigger a sharp break into the Fibonacci level at 3757.75. Taking out this level could trigger an acceleration to the downside with 3639.00 the next major target.

Side Notes

Watch the price action and read the order flow on a test of 3794.50 to 3757.75. Trader reaction to this zone will determine the near-term direction of the index. Aggressive counter-trend buyers are going to try to form a potentially bullish secondary higher bottom. Trend traders are going to try to take out 3757.75.