The S&P 500 E-mini contract has reached the 50-Day EMA, breaking above the 3800 level. This is a bullish sign, but it is more likely than not going to be indicative of some type of relief rally more than anything else. After all, this is a market that has seen quite a bit of negativity and downward pressure, so occasionally it will come back up for air. We are in the midst of earnings season, so that obviously has its own ramifications, and therefore volatility will probably be more elevated than not.
If we break down below the bottom of a candlestick for the trading session on Monday, then we probably go down toward the 3600 level. However, we could break above the 50-Day EMA, opening up the possibility of a move to the 4000 level. Ultimately, this is a market that will eventually run out of momentum, and I will be there waiting for it. After all, the Federal Reserve is going to continue to tighten monetary policy, and it does make sense that we would see the market eventually react to that again. However, there is currently a narrative going on around Wall Street that the Federal Reserve may actually start to slow down rate hikes quicker than anticipated.
Obviously, this is an unemotional market at the moment, but that should not be a huge surprise considering the type of massive destruction that we have seen. While you could make money to the outside at the moment, if the trend were to truly change, and say that we have put in a bottom already, the reality is that you will have more than enough opportunities to get involved so you don’t necessarily have to be the first one back in. Keep in mind that a lot of traders make the mistake of trying to jump all in right away, catching them next big swing higher. While the idea seems nice, the reality is that we never truly know where the top or bottom of a market is, we can only react accordingly. I think at this point it does make quite a bit of sense that the market is still negative, because the fundamentals have not changed whatsoever. However, markets don’t go down in a straight line, so it does make quite a bit of sense that we did get a bounce.
