The S&P 500 Index has been very quiet during trading on Tuesday, as we kick off earnings season in earnest with the financials reporting. At this point, it’s also worth noting that we are hanging around the 200-Day EMA, an indicator that has been interesting multiple times over the last couple of years. The downtrend line sits just above there, so that obviously brings in some resistance as well. We have been in a major channel for quite some time, and now are threatening to break out of it.
If we do break out above the top of the channel, then it’s possible that we could look into the 4100 level. At this point, it’s difficult to imagine a situation where the market would do that, but anything is possible during earnings season, and of course all it would take is somebody from the Federal Reserve saying the right couple of words, and we will be off to the races. If we break down below the lows of the Monday session, we could send this market much lower, perhaps reaching the 50-Day EMA underneath, which is right around the 3900 level. The 3900 level course is a large, round, psychologically significant figure, and an area that we have seen both support and resistance at recently.
S&P 500 Index at a Major Inflection Point
- In other words, we are the major inflection point and I think the next couple of days could give us an idea as to where we are going longer term.
- I do like the idea of letting the market tell me what it wants to do before I put money to work in places like this, although I do have a more bearish proclivity overall.
- Nonetheless, the structure is somewhat constructive recently, although we have not broken to a fresh, new high yet.
In general, I think the thing that we are going to see is going to be volatility as traders have no real clear signal on what to do. Even though the Federal Reserve continues to talk about tight monetary policy, there are enough people out there who are trying to “front run the Fed” that every couple of days I start to hear a new narrative as to why you should be buying stocks. This is a very difficult trading environment, so I find that the best thing that you can do is trade smaller than usual, and then add once the market shows that you are correct.
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