S&P 500 Futures Experience Range-Bound Trading Session Amid Elevated Volatility

During the after-hours session until early morning hours, there was a notable increase in volatility in the stock market. The S&P 500 futures witnessed a decline below the 21-day Exponential Moving Average (EMA) at 3,983 and subsequently fell to the psychological level of 3,900. This period saw a range of 80 points, although it did not translate into the cash session. When retail traders eventually became involved, the S&P 500 futures remained stagnant at the 200-day Simple Moving Average (SMA).

As soon as the opening bell rang, key moving averages created distinct ranges and targets, and the market began by staying above the 200-day Simple Moving Average (SMA). Buying volume increased, but it needed to be more widespread for the indices to witness further continuation as the market started to climb higher. The 15-day SMA at the 3,970 level created some initial challenges for continued upward movement. Nevertheless, the market was able to surpass the 15-day SMA and maintain it as a support level for a significant part of the trading session.

Upon surpassing the 15-day Simple Moving Average (SMA), the next visible level was the 21-day Exponential Moving Average (EMA), which often serves as a significant resistance for various reasons. Firstly, its impact on the pre-market is one such reason. Secondly, it is an excellent indicator of macro market trends, where a bullish trend is indicated if the S&P 500 is trading above the 21-day EMA, while a bearish market is indicated below 21. It is crucial to consider the macro trend while trading, as it usually represents the path of least resistance.

Throughout the remaining session hours, the S&P 500 futures oscillated between the 15-day SMA and the 21-day EMA. By the closing bell, the market had closed around the mean.

Common Market Behavior

It is typical for the market to exhibit such behavior, especially in the face of significant upcoming catalysts. This involves moving back and forth around critical moving averages, particularly the 21-day Exponential Moving Average (EMA), and experiencing minor fluctuations in the cash session. Another characteristic of the market leading up to an event, such as Tuesdays, is an increase in option premiums, which also occurred today.

Although it is not necessarily a given, the probability of the market trading sideways leading up to the event is gradually increasing. This is because the market is still determining how the news will affect it once it is released. Trading around the 21-day EMA allows the market to move in either direction. Furthermore, moving sideways conserves energy as the market prepares for a potential breakout.

The Big Catalyst

On Wednesday, the Federal Reserve (Fed) will announce its interest-rate decision at 2 p.m. Eastern. Shortly after, Fed Chairman Jerome Powell will hold a press conference at 3:30 p.m. Eastern. 

Right now, the anticipated outcome is entirely in the air. The three most likely options include a 0 basis point hike, a 25 basis point hike, and a 50 basis point hike. 

Market Trickles Higher to Begin Week

The Nasdaq and the S&P 500 were Positive to close the session. The S&P 500 futures closed up 0.93%, adding 36 points, while the Nasdaq futures closed up 0.38%, gaining 49 points. The Dow Jones futures led the charge, closing up 1.20%, an increase of 384 points.