S&P 500 Futures Test Key Retracement Zone After Bouncing from Support
March E-mini S&P 500 Index futures are higher shortly after the opening on Wednesday. Traders are attempting to build on yesterday’s successful test of an intermediate retracement zone at 6813.00 to 6758.75. This zone, which stopped the selling at 6791.00 yesterday, also stopped it on February 6 at 6751.50.
The Pattern We’ve Seen Multiple Times Since November May Be Breaking Down
The new short-term range is 7043.00 to 6751.50. Buyers are now testing its retracement zone at 6897.25 to 6931.75, putting it in a position to challenge the 50-day moving average at 6934.66.
We’ve seen this pattern repeat at least five times since November where the index plunges through the 50-day MA then soars again as it regains it. While all of the others produced a series of higher-highs, including the record at 7043.00, suggesting real momentum buying, the last two failed to do so, producing swing tops at 7027.25 and 7006.50.
Next Few Days Will Tell Us If Sellers Are Starting to Cap Gains
We’re going to be watching the momentum if the 50-day is recaptured or rejected by traders over the next few days. If the next breakout attempt fails at the 50-day then we’ll know that sellers are trying to cap gains, helping us to build a case for a rollover to the downside. Breaking the pattern could give us a significant signal that investors are shying away from buying strength and may be shifting toward buying value.
The nearest value zone is 6813.00 to 6758.75. If it fails to hold on the next test then this will open the door for a possible dump into the 200-day moving average at 6623.62.
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See all S&P 500 forecastsTwo Scenarios: Breakout to New Highs or Rollover to 200-Day MA
To summarize our analysis, a breakout and sustained rally over the 50-day moving average at 6934.66 will likely trigger a rally to a new record high. A failure to overcome the moving average will indicate the presence of sellers, putting both the retracement zone at 6813.00 to 6758.75 on the radar along with the 200-day moving average at 6623.62.
This Looks Like Bargain-Hunting in Tech, Not Fed Minutes Anticipation
Fundamentally, all three major indexes are higher as traders bide time ahead of the release of the Fed minutes at 19:00 GMT. I don’t think today’s buying spree is related to the Fed minutes or rate cuts at all. It appears to be just good old-fashioned bargain-hunting, fueled by relatively cheap technology shares after the sector sold off the last two weeks and investors moved their money into old-economy stocks.
Are Investors Trying to Rebuild FANG Positions?
From the looks of the early price action, it appears that investors may be trying to rebuild positions in some of the FANG or “Magnificent Seven” stocks, likely in the hopes of a return to the glory days when they could just “set it and forget it.” We’ll be monitoring the price action in shares of Apple, Amazon, Google and Microsoft over the next few days to see if they can drag the technology sector out of the hole.
More Information in our Economic Calendar.