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Bad news baked into stock prices?

All eyes focused on Chairman Powell and the Fed as they announced one of the biggest rate hikes in more than two-decade. US stocks quickly reversed direction and rallied sharply higher soon after the Fed delivered a 50-basis-point rate hike. The sharp market reversal began soon after Powell responded to a question from the press that the Fed has no plans to raise rates by 75 basis points in the upcoming FOMC meetings. The Fed also outlined the process to reduce its $9 trillion balance sheet, starting with $47.5 billion a month in June and then $95 billion a month soon after. Transparency and the clarity of the Fed announcement today ignited another technical market rally.


The S&P 500 Index rallied sharply higher, jumping 124.69 points or 2.99%. The blue-chip Dow Jones Industrial Average also gained 932.27 points or 2.81%. The battered technology-laden Nasdaq Composite Index soared 401.11 points or 3.19%.


In the past week, stock market indexes threatened to collapse but avoided a significant breakdown. Short-term technical signs, including oversold conditions, bearish sentiments, near-term selling exhaustion, and daily technical reversal patterns in Nasdaq and technology indexes, hint at another short-term rally. However, formidable resistance can still derail any rallies as failure to surpass resistance warns of another market selloff during the summer, possibly as early as the next FOMC two-day meeting on June 14-15th.


Nonetheless, the dovish 50-bp rate hike by the Fed gave traders, especially professional money managers, an excuse to return to the market, at least on a trading basis.


The pertinent question remains - are bad news baked into stock prices?


And how much is not yet priced in the marketplace?


Below are updated technical levels for S&P 500 Index (SPX), Dow Jones Industrial Average (INDU), and Nasdaq Composite Index (COMPQ).


S&P 500 Index (SPX – 4,148.91)


Support 1 = 4,222.5-4,233

Support 2 = 4,114.5-4,158

Support 3 = 4,039-4,062.5


Resistance 1 = 4,341-4,374.5

Resistance 2 = 4,491-4,513

Resistance 3 = 4,530-4,560

Resistance 4 = 4,595-4,637

Resistance 5 = 4,732-4,749

Resistance 6 = 4,818.62


Dow Jones Industrial Average (INDU – 34,061.06)


Support = 31,682-32,450


Resistance 1 = 34,060-34,330

Resistance 2 = 34,967-35,165

Resistance 3 = 35,360-35,824

Resistance 4 = 36,566-36,953


Nasdaq Composite Index (COMPQ - 12,964.86)


Support = 11,854-12,397


Resistance 1 = 13,002.5-13,13,136

Resistance 2 = 13,425-14,465

Resistance 3 = 13,711-13,734

Resistance 4 = 14,160-14,211.5

Resistance 5 = 14,596-14,680

Resistance 6 = 15,901.5-16,212


Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

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