What Happened: Last week ended negative on weakness concentrated in heavily-weighted index constituents.
Remember This: “The Fed essentially acknowledged they were a bit behind the curve with their forecast on the economy, as projections needed tweaking to reflect the current path of the recovery,” noted Charlie Ripley, Senior Investment Strategist for Allianz Investment Management.
“However, with near-term risks to the outlook still intact, the Fed continues to reiterate that it is too early for victory laps on the economic recovery. On the horizon, the path of the virus, the upcoming election, and the motivation for additional fiscal stimulus are all hurdles the economy needs to overcome.”
Pictured: Profile chart of the Micro E-mini S&P 500 Futures
Broad-market equity indices ended the week lower with the S&P 500 correcting to $3,280.
Recapping Last Week’s Action: Alongside progress in COVID-19 vaccine development, on Monday, participants rejected the prior week's low, establishing value higher on a gap. Ahead of the Federal Reserve's two-day meeting, Tuesday’s session confirmed the upside directional conviction, trading up to a multi-day ledge formed by mechanical sellers. In light of Fed statements, after the ledge proved resistive for two days straight, the market liquidated through Friday’s session, testing and accepting value near a low-volume area that formerly denoted directional conviction to the upside.
Overall, the market’s weakness on economic concerns and acceptance of value below a composite high-volume area, confirms the near-term change in conviction. That said, indices keep testing the low-volume area below $3,320. Acceptance within the low-volume area may foreshadow a test of $3,270, the next-closest high-volume concentration which could slow prices enough to allow responsive longs entry at more favorable prices.
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Albert Edwards, chief investment strategist at Societe Generale SA (pink:SCGLY), suggested rapid money supply growth will worsen the deflationary bust.
Simply put, indebtedness and malinvestment in unproductive activities will lower the economy's growth prospects.
S&P 500 E-mini Futures (ES) | SPDR S&P 500 ETF Trust (PSE:SPY)
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