The release of the US Year-on-Year Inflation on Tuesday may put an end to the S&P 500 futures (CME: ES) rally. While a pause in interest rate hikes by the Fed seems imminent, the RBA’s decision to raise interest rates by 25 basis points surprised the market, leaving traders weary about the possibility of the Fed doing the same. 

Adding to the mix, US Initial Jobless Claims exceeded forecasts by 26000, leaving the market in a slightly risk-on setting. However, the Nasdaq continues its rally, driven by the strength of tech giants, resulting in a 1% increase in the S&P index level. Will the tech stock rally hold against further rate hikes by the Fed?     

Technical 

The index level is consolidating within an ascending channel pattern. The bulls have succeeded in meeting the upper boundary three times, finding resistance at 4341.25, while the bears managed to break through the channel pattern and find support at 4127.  

If the Fed decides to shock the market and hike interest rates, the bears may attempt to drive the index out of the channel and towards the 4182 support. However, tech stocks continue to exhibit abnormal growth, which could see the channel pattern play out where the bulls may see the index level through to the lower bound before driving it back up to the upper bound, establishing higher resistance levels.  

Summary 

The S&P 500 may find itself in a risk-on setting following the uncertainty surrounding the FOMC Minutes expected next week. If the Fed decides to hike interest rates, then the bears may be encouraged to drive the index level out of the channel and towards the 4182 support. However, if the Fed pauses interest rate hikes for the time being, then the bullish momentum could continue establishing higher levels of resistance. 

Sources: TradingView, Reuters, Nasdaq