FUNDAMENTALOVERVIEWThe correction in the S&P 500 has finally started as the hot NFP numberlast Friday acted as a wake-up call for the hawkish Fed risks. I mentionedback in May that we were approaching an inflection point due to the prolongedUS-Iran stalemate and the shift in Fed’s stance. The rally in April was justified by easing US-Iran tensions, the constantpush for a diplomatic resolution instead of another full-fledged war andexpectations that a deal would be reached eventually. The gains in May, on the other hand, were driven more by FOMO rather thanfundamentals which is the part that generally offers mean-reversionopportunities as markets get overstretched. I wouldn’t be surprised if thestock market were to erase all the May’s gains. The core problem is that the Fed might be forced to tighten policy into anegative supply shock. This is bad for growth expectations and therefore for equityprices. The “good news” is that Trump will lose his leverage with a fallingstock market which could eventually force him to reach a deal and get theStrait of Hormuz reopened. The bad news is that we don’t know what’s going to be his pain threshold,so the stock market could fall quite a bit before we get a breakthrough in negotiations.Today, all eyes will be on the US CPI report. Yesterday’s and today’s priceaction suggests there’s likely been some hedging into potentially hot data.Some conspiracy theorists have also raised suspicion that Trump and Co. mighthave leaked the data and the moves were due to insider trading. I’m not into suchconspiracy theories. The moves started with the NFP, and they are likely to extendinto the FOMC as there’s the risk of a more hawkish than expected Fed. A soft CPI could trigger a relief rally and then the market might consolidateinto the FOMC. A hot CPI, on the other hand, might exacerbate hawkish Fedworries and push the market into new lows.S&P 500TECHNICAL ANALYSIS – DAILY TIMEFRAMEOnthe daily chart, we can see the S&P 500 probed below the key 7,350 support zone yesterday buteventually erased the losses to finish the day above the support. The price isnow breaking below the support again and this time the drop might be sustainedinto the 7,200 support next. If the price gets there, we can expect the dip-buyersto step in with a defined risk below the support to position for a rally back intorecord highs. The sellers, on the other hand, will look for a break to increasethe bearish bets into the 7,050 level next.S&P 500TECHNICAL ANALYSIS – 4 HOUR TIMEFRAMEOnthe 4 hour chart, we can seemore clearly yesterday’s selloff which might have been caused by hedging into apotentially hot US CPI report. The price is now breaking below the supportagain, so we can expect the sellers to pile in here with a defined risk abovethe broken support to target the 7,200 level next. The buyers, on the otherhand, will want to see the price rising back above the broken support toposition for a rally back into the 7,500 level.S&P 500 TECHNICALANALYSIS – 1 HOUR TIMEFRAMEOn the 1 hour chart, there’snot much we can add as the sellers will likely continue to push towards the 7,200support, while the buyers will look for an opportunity around the 7,200 supportor wait for the price to rise back above the broken 7,350 level. The red linesdefine the average daily range for today. UPCOMING CATALYSTSToday, we have the USCPI report. Tomorrow, we get the latestUS Jobless Claims figures and the US PPI report. On Friday, we conclude theweek with the University of Michigan consumer sentiment survey. This article was written by Giuseppe Dellamotta at investinglive.com.