The S&P 500 has pulled back during the trading session on Tuesday to break down through the bottom of the hammer from Monday. This is a relatively negative turn of events, but let us not get ahead of ourselves here, as we are still very close to the all-time highs, so that means that even if we do get a little bit of a pullback, makes quite a bit of sense that we would see buyers underneath given enough time. In fact, we have a nice uptrend line that is coming into the picture.
The uptrend line is a support barrier that I think a lot of people will pay close attention to, right along with the 50 day EMA which sits just below it. In other words, I think we have enough in the way of support to keep this market afloat. Yes, the candlestick is a little bit negative, but at the end of the day this has been a “buy on the dips” type of market for ages. The Federal Reserve will do when it can to keep the market afloat, and as a result I think that people are still counting on the “Powell put” going forward.
If we do break down below the 50 day EMA, then the 4200 level would be a significant support level, and therefore I think that it would only be a matter of time before the buyers will get involved. Breaking below that level then has the market looking towards the 4000 level, which also features the 200 day EMA and has a certain amount of psychological importance built into it. In other words, I think that might be your “floor the market”, as the large figure tends to have a huge options barrier there. If we were to break below the 4000 level, things could get rather ugly.
If we do break down below the 50 day EMA, I might be convinced to start buying puts, but it would be only options that I would trade, simply due to the fact that the markets tend to spike to the upside rather a radically at times, so it is a way to keep your potential losses under control. If we were to turn around and take out the highs of the last couple of days, then I think it opens up a move to 4500.
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