S&P 500 (SPX) – Yield curve remains inverted after the rate cut

The Fed finally caved in to the market. In the latest FOMC meeting, 25bps was cut from the policy rate.

Disappointed somewhat, investors sold. The cut was not only smaller than they had hoped for, but they fear that future monetary easing will be limited because the Fed chair stated that this cut is simply a ‘mid-cycle adjustment to policy.’

The Fed’s stance is logical. The central bank simply cannot promise huge cuts now when the S&P500, Dow, and Nasdaq are all flirting near their new all-time highs while the economy is still relatively stable.

Technically, the S&P 500 (SPY) is at an awkward position because prices are at risk of a ‘failed upside break’ at 300. Whenever this pattern happens, prices usually retreats all the way to its nearest pivot support. On SPY’s chart, this is estimated at 275 (see Featured Chart).

Moreover, this relatively large dynamic could be a minor warning sign that US stock markets are ‘priced for monetary perfection’, which the Fed can not deliver. Therefore some further corrective action are anticipated. It may not be sharp drops; but grinding action into the next support.

For QQQ, the next medium-term pivot support is at 170. But first prices have to break the 50-day moving average (see below).

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