S&P 500 Posts Late Recovery as Gold Melts Below $1900, Where to Next?

XAU/USD, S&P 500 price prediction:

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Global markets continued to feel the pinch today as US yields continued to rise along with the US dollar, with losses widening in early US trading. Gold has similarly made a spectacular move below the $1,900 mark, easily breaking through recent lows around $1,884 and hitting a session low of $1,872 at the time of writing.

US dollar index (DXY) and auto workers strike

The US dollar index hit a new high today before hitting resistance near the 106.80 mark. This coincided with both gold and SPX rebounding slightly as US trading drew to a close. However, we remain hopeful that this will be a sustainable rebound, as any short-term rebound is likely to be met with selling pressure.

Fed policymaker Harker’s hawkish comments that day did little to ease a long rally. Harker said the current data does not suggest the Fed is taking a restraining policy, but it does point to the possibility of further rate hikes if the Fed fails to meet its goals. Stated. This is a continuation of hawkish statements from Fed policymakers following last week’s central bank meeting.

The United States is also dealing with a strike by the United Auto Workers union, which plans to strike three more auto plants in Detroit on Friday if no progress is made. The UAW is expected to continue striking unless a new contract is ratified and confirmed, which will likely weigh on the U.S. economy.

As the fourth quarter approaches, US consumers are likely to be under pressure, and market participants have much to worry about. The combination of depleted savings, the resumption of student loan payments, and rising oil prices makes this the perfect cocktail that could actually help the Fed suppress demand and bring inflation closer to its target. .

US 2-year and 10-year yield chart

Source: TradingView, created by Zain Vawda

US yields, particularly the 10-year Treasury note, enjoyed a very productive Wednesday, hitting a new high of around 4.62%. This came as a surprise this morning, as the 10-year Treasury yield briefly dipped below 4.5% before turning bullish towards new highs, giving the appearance that some pullback in U.S. yields was possible.

Gold technical outlook

From a technical perspective, gold prices recorded their worst day since July, dropping about $30 on the day. As we discussed yesterday, we are seeing a follow-through of the death cross pattern as the 50-day moving average has broken below the 200-day moving average, a sign of increasing bearish momentum.

Looking to the downside, the handle at the day’s low of $1,872 provides immediate support. Once the daily low is broken, the gold price will likely fall towards the $1,850 level, with $1,858 likely to provide some support.

The important thing here is that the new low could result in a short-term retracement here, and as the RSI is currently in oversold territory, a pullback cannot be ruled out. This will depend on a pullback in the dollar index and US yields, but any such pullback attempt is likely to be met with selling pressure.

Gold (XAU/USD) Daily chart – September 27, 2023

Source: TradingView, chart created by Zain Vawda

S&P 500 technical outlook

The S&P 500 has fallen sharply since touching the top of the triangle pattern on September 14th, with bearish candlesticks hinting at what’s to come. However, considering the resilience of US stocks in 2023, few market participants expected a subsequent decline.

After breaking below the triangle pattern, the 100-day moving average offered little support and the 4300 level briefly supported the decline. However, the decline resumed yesterday, with SPX in no-man’s land between the 100-day and 200-day moving averages. While daily candlesticks briefly recovered to the point where they could trade like hammers, a sustained recovery seems unlikely given the headwinds currently facing the market.

S&P 500 Daily Chart – September 27, 2023

Source: TradingView, chart created by Zain Vawda

IG client sentiment

A quick look at IG customer sentiment shows that retail traders have shifted to a more bullish stance, with 57% of retail traders currently holding long positions. Given the contrarian view on crowd sentiment adopted by DailyFX, is this a sign that SPX may continue to fall?

If you want to learn more about SPX’s Client Sentiment and how to use it, download our free guide below.

Author: Zain Vawda, Market Writer DailyFX.com

Contact and follow Zain on Twitter: @zvawda