The aftermath of the banking sector crisis has not entirely subsided as the S&P500 futures (CME: ES) continue to trade below pre-crisis levels, and waves of selling are met with strong momentum. So far, the S&P500 futures have gained on a single day this week, while selling has been the predominant theme. 

Today’s labour market reports could provide short-term volatility as traders gauge where inflation could be in relation to employment rates. The Federal Reserve is in a dilemma as above-target inflation prompts higher interest rates. At the same time, the banking sector requires a Fed Pivot to minimise the risks of loss from loss-making fixed-income portfolios.  

Technical

Following a crossover below the 100-day moving average, the S&P500 futures have trended lower, with a descending triangle pattern seemingly unfolding. Support was established at the 3871.50 level, while a rejection of the 50% Fibonacci Retracement at the 3977.25 level formed resistance.  

Price is moving lower following a rejection of the descending triangle pattern’s resistance. Bears will likely aim for support at the 3871.50 level as a probable take-profit level.  

Alternatively, if bulls look to bolster their activity in the market, a breakout above the descending triangle’s dynamic resistance on high volumes could signal the build-up of momentum to the upside. Bulls will likely look to the 50% Fibonacci Retracement level with interest if they drive the index higher.  

Summary

Traders will likely look to the U.S. labour market reports today and Michigan Consumer Report tomorrow for cues on whether the Federal Reserve will respond aggressively or lightly amidst the banking sector crisis. Although bets fluctuated between a 25 basis point rate hike and no rate hike, traders expect a 72% chance of the former. The S&P500 could potentially gain from the absence of a jumbo-sized 50 basis point rate hike.  

Sources: Reuters, CME FedWatch Tool, TradingView