S&P 500 Shows Alarming Pattern Before FOMC Decision and Tech Earnings

The S&P 500 Index has wavered in the past few weeks as the recent bullish momentum stalled. It was trading at $6,913 on Friday, a few points below the all-time high of $6,980.

The long-term SPX Index forecast is bullish. However, there is a risk that it will go through a correction as it has formed an alarming pattern on the daily chart.

S&P 500 Index Has Formed an Alarming Pattern

The daily timeframe chart shows that the blue-chip S&P 500 Index has slowly formed at least three highly bearish chart patterns. The most important one is the rising wedge, which has been forming since October last year.

The pattern forms with two ascending, converging trendlines. A bearish breakout occurs as the lines approach confluence. This confluence has already occurred. The index then moved below it, retested its underside, and confirmed a classic break-and-retest pattern.

Additionally, the Relative Strength Index (RSI) and the Percentage Price Oscillator (PPO) have formed a bearish divergence pattern. This pattern happens when an oscillator is moving downwards as an asset’s price continues rising. In most cases, a bearish divergence leads to more downside.

The S&P 500 Index was trading at $6,913. That’s much higher than the 100-day and 200-day EMAs, which are trading at $6,721 and $6,478. Therefore, the index may go through a mean reversion, where an asset moves back to its historical averages.

If this happens, the potential retreat could see it dropping to the psychological level at $6,600. However, a move above the all-time high of $6,975 will invalidate the bearish S&P 500 Index forecast.

Big Technology Earnings Ahead

The next catalyst that may lead to a pullback in the S&P 500 Index is the upcoming earnings by companies in the Magnificent 7.

Microsoft, Meta Platforms, and Tesla will publish their numbers on Wednesday next week. On the other hand, Apple will release its quarterly results on Thursday. Other companies in the Magnificent 7, like Amazon and Google, will release their numbers in the following week.

All these companies have a combined market capitalization of over $16 trillion, giving them more weight in the S&P 500 Index.

These companies spend the most in the artificial data center industry. Their spending has powered the stock market in recent years. They are also Nvidia’s biggest clients.

Slowing revenue growth and data center spending would hurt the S&P 500 Index. These signs would signal that the AI bubble is bursting.

Other highly important companies will publish their numbers next week. Some of the most notable ones are UnitedHealth, Boeing, Texas Instruments, General Motors, ASML, Lam Research, and IBM.

FactSet reported strong earnings this season. Companies that published numbers show an average growth of 8.2%. This marks the tenth consecutive quarter of earnings growth.

Federal Reserve Interest Rate Decision

The other main catalyst for the S&P 500 Index will be the upcoming Federal Reserve interest rate decision. This will happen on Wednesday.

This will be an important decision as it will be the first one this year and may set the tone for what to expect later this year.

However, the real decision will have no major impact on the S&P 500 Index. Instead, the index will react to the dot plot of the committee members.

It will also react to Jerome Powell’s statement on what to expect later this year. A highly hawkish tilt will be bearish for the US stocks as investors anticipate at least three cuts this year.

The S&P 500 Index will also react to the potential Supreme Court decision on Donald Trump’s tariffs, which may come out any day.