Market Insight – Dead Cat Bounce or End of Bear Market?

• S&P500 – Dead Cat Bounce or End of Bear Market?
• ECB Meets to begin the rate-hike Cycle today.
• Euro Rebounds ahead of ECB hike.

S&P 500

The index has been climbing higher since July 14^th and after retrieving from the Pivot point at 3900 on Monday the bounce the next day was sharp and indicates a break away from the Downtrend descending Channel. It is to be seen if this is just a relief rally an over-excitement of the investors or a reversal in the longer-term Downtrend.

This week is crucial for the markets as ECB is Meeting today to decide on the Key Rates and the Euro has rebounded on the expectations of a 50-bps hike. Next week we have the FOMC meeting for July indicating the direction Feds want to take on tightening going forward. The Market is expecting yet another rise of 75bps in the FOMC meeting next week as there are deepening concerns over economic growth and inflation at record high levels. S&P 500 rallied overnight by 0.59% to 3959.90 on better-than-expected results from Tesla, Nasdaq was up by 1.58% to 11897.65 and Dow Jones inched higher by 0.15% to 31874.84.

Chart Analysis

The above S&P 500 chart shows that the index has moved out of the descending channel heading towards and testing the key resistance level on the chart at 3970 points. Is this a Dead Cat Bounce rally or Market has really recovered from the lows?

From the analysis, it appears that the Index is fairly above its June Months low of 3636. And is already testing the resistance levels. Once the prices break through the resistance level and after consolidation above the level the index could test the 4000-point resistance zone. The Index is moving higher forming Higher Highs and Lower Lows a clear sign of trend change and initial rally.  

Trade Insights – US500

The chart shows Viable Long Positions above the Key Resistance Level at 3970 Resistance Zone at 4050 to 4070. And then it heads towards the higher resistance levels at 4200.

Alternatively, Short positions below the Major Pivot point at 3900 with the target to head towards the Key Support Level at 3725 and then towards the Support zone at 3640 to 3620.

ECB Meeting and Rate Hike Cycle

As per the market expectations, the ECB could hike its key rates by 25 basis points (bps). However, there is this increased possibility of a 50 Bps hike. In which, the ECB would be taking an aggressive approach towards tightening. The later possibility of 50 bps is good for Euro. Especially as it will find some support finally as it has slipped below $1 this month. EUR/USD forex pair is already heading north on the possibility. On the other side, the BOJ – Bank of Japan left its monetary policy unchanged and raised its inflation forecasts a bit higher. Apparently, BOJ is going to stick to its ultra-easy policy and setting for the foreseeable future.