The last two times the Fed hiked in a midterm September: one crash, one bottom. Round three is in two weeks, here’s how to trade into the event 👇
$S&P 500(.SPX)$ closed at 7,631, its lowest level since August 4, after losing the 7,650-7,700 zone it defended for two weeks. Oil is surging on the Strait of Hormuz escalation, the 10-year is pressing 4.8%, and rate markets flipped to pricing a September hike. Jobs Friday, then FOMC mid-month. Three paths from here.
Scenario #1: The September Flush
Oil and yields don’t let up and the breakdown follows through. $SPX loses 7,600, bounces get sold, and the flush runs to 7,500 (roughly 4% off the highs) where the market finally bottoms out. If the midterm playbook holds, that’s the low of the year forming, not the start of a bear market.
Scenario #2: Failed Backtest Chop
$S&P 500(.SPX)$ stabilizes and rallies back toward 7,700 but the previous support acts as resistance and the bounce stalls. Market coils between 7,600-7,700 into the FOMC with a hike half-priced, chopping up both sides until the Fed picks the direction.
Scenario #3: De-escalation Rip
A Middle East de-escalation headline or a cool jobs print Friday and oil dumps, yields pull back hard. $SPX reclaims 7,700, every short from today’s breakdown is trapped, and the squeeze runs back to 7,816. New all-time highs into the “worst month of the year” as maximum pain.
Market Conditions
$S&P 500(.SPX)$ above 7,700 = Bullish (breakdown reclaimed)
$S&P 500(.SPX)$ between 7,600-7,700 = Neutral
$S&P 500(.SPX)$ under 7,600 = Bearish (opens 7,500)
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