Thursday's Market Minute: S&P Futures: An Uptrend in Peril?

As the dust settles from the Federal Reserve’s decision to leave interest rates unchanged at yesterday’s meeting, S&P 500 futures continue to fall in premarket trading. The /ES was down about -4% from its yearly highs on July 27 as of the close, and this decline has triggered some potentially important technical developments.

First, yesterday’s price action showed that the /ES poked its head above its 21-day Exponential Moving Average but failed to break out. Additionally, it crossed and closed below both its 21-EMA and 63-EMA, which is a bearish signal. The moving average lines themselves also reveal further trend weakness, as the slope of the 21- and 63-EMAs has shifted from upward to downward. These developments suggest early rumblings of potential trend change.

Second, momentum also worsened for the bulls, as shown by two different indicators. The Relative Strength Index (RSI) crossed below its midline reading of 50, which separates bullish momentum from bearish momentum. Meanwhile, the Moving Average Convergence Divergence indicator (MACD) registered a bearish crossover as well. Both situations suggest the speed of price movement is starting to pick up to the downside.

Finally, today’s further decline is bringing price below its recent lows from Sep. 9. Price action is the most important part of technical analysis, and the simple act of making new relative lows is worth noting.

If the downtrend continues, the area near 4,350 stands out for potential support, as this is the site of the post-contract change lows on Jun. 12 and another test on Aug. 18. On the other hand, if the /ES rallies and reverses its trajectory, look for short-term resistance first at the 63-EMA (near 4,452) and then at the 21-EMA (near 4,483).