S&P 500 Forecast as the VIX and DXY Index Bounces Back

The S&P 500 index pulled back to the lowest level since July 28 as concerns about monetary policy continued. As it dropped, the CBOE VIX index jumped to the highest point in two weeks, while the fear and greed index moved back to the neutral point. The DXY index also surged to the highest point in 20 years. However, the index is still about 10% above the lowest level this year.

InvestingCube's S&R Levels

NAS100

NAS100 (11324.8)

In Profit

STOP

SELL

TP1

11478

TP2

11338

VIX and fear and greed index diverge

The S&P 500, Dow Jones, and CAC 40 indices declined sharply after last week’s statement by the Federal Reserve chairman. In a statement at the Jackson Hole Symposium, Jerome Powell warned that the bank will continue hiking interest rates in the coming months. 

It will also leave rates at a high point for the foreseeable future. Moreover, other Fed officials like Neel Kashkari and Charles Evans reinforced Powell’s statements. As a result, investors expect that the bank will hike interest rates by either 0.50% or 0.75% in the coming meeting in September.

Powell’s statement had an immediate impact since analysts were expecting the bank to start slowing its rate hikes. As a result, the US dollar index rallied to the highest point in over 20 years as the currency strengthened against the euro, Swiss franc, and sterling. Similarly, the VIX index, which is the best gauge of volatility, rose to the highest point in two weeks. And after rising to the green greed zone, the fear and greed index has pulled back to the neutral point.

S&P 500 index forecast

The four-hour chart shows two important patterns that are bullish on the S&P 500. First, the Elliot Wave pattern shown in black reveals that the index is now forming the fourth wave. The bullish fifth one usually follows this wave. At the same time, the index has formed an inverted head and shoulders pattern. 

Therefore, there is a likelihood that the index will bounce back soon and retest the important resistance level at $4,200. A move below the support at $3,800 will invalidate the bearish view.

S&P 500