Market Sentiment Pivots

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Alex Partida

Nov 04th 2022  .  3 min read

Making sense of a wild week

Coming into the week, markets were anticipating a pivot from the Federal Reserve (Fed) during the Federal Open Market Committee (FOMC) announcement. Ultimately the only thing that pivoted was the overall market sentiment.

Rumors circled the market that the Fed had planned on slowing down interest rate hikes. With the anticipation of pivoting from a hawkish to a dovish tone, market sentiment was positive, encouraging a modest rally for the last couple of weeks.

On Monday, indexes began to price in another potential rate hike and traded lower. One thing to remember is how prices can move, leading into events like these. Much like other weeks with a busy economic calendar, the market moves with caution and fear. This does not always equate to negative price action but rather some indecision across the board.

The big event starts and shakes up the market

When the FOMC report initially came out with their statement, they had confirmed these rumors to be accurate, but there was a small problem. When Federal Reserve (Fed) Chairman Jerome Powell was being questioned at the podium, he let the hawkish tone continue. Yes, the Fed intends to lower rates, but that is not indicative of what will happen any time soon. In fact, Powell stated that they are likely to be further off than they initially projected. He also admitted that the market had gotten ahead of itself. He then confirmed that the pivot would happen only after economic data indicated that the time was right

For the rest of the cash session on Wednesday, the market had sold off in reaction to the comments made by Powell. The Fed had shown that it would not pivot, but the market sentiment certainly has. 

Thursday was more of the same, a continuation of selling that stemmed from comments by Powell. It is important to note that the market has held below the 21-day exponential moving average (EMA) since these comments. This same selling pressure was seen in the early hours of Today’s session, but the market was able to fight back one last time to close green for the first time this week.

Look into next week

Next week, the economic data cycle continues, with the Consumer Price Index (CPI) reporting coming out on Thursday, November 10, at 8:30 am Eastern. 

One significant level to keep on your radar will be the psychological level of 3,800. This level is not only a psychological level, but an area full of liquidity with both the 15-day simple moving average (SMA) and the 21-day exponential moving average (EMA) reside.

With an intense fight back to end the week, the above levels can be used as a line in the sand to prevent getting caught in a bull trap.

Market fights to end week green.

The Nasdaq and the S&P 500 were positive to close the session. The S&P 500 futures closed up 1.41%, gaining 52 points, while the Nasdaq futures closed up 1.66%, a gain of 177 points. The Dow Jones futures followed, closing up 1.31%, adding 421 points.