The S&P 500 was relatively quiet during the trading session on Monday as earnings season kicked off. That being said, the market is now well above the 4100 level, and as a result it looks like we are ready to go higher. Having said that, we are a little bit overextended, so if we break down below the 4100 level, then it is possible that we could see a little bit of a pullback. That pullback would be healthy though because the market has gotten ahead of itself.
The 4000 level underneath will be a significant psychological barrier, not only due to the large figure, but also the gap that is sitting there. At this point in time, the market is likely to see buyers on dips, and that is especially true going into the earnings season. It would not surprise me to see pullbacks bought into as some type of range scare may not the market back down, but quite frankly people are looking for reasons to get involved. Even if we were to break down below that 4000 handle, then it is possible that we could go down to the 50 day EMA which is currently at the 3918 handle.
Regardless of what happens, I will have no interest whatsoever in shorting this market, because shorting the S&P 500 is a great way to lose money. That being the case since the Federal Reserve has flooded the markets with liquidity over the last 13 years, and therefore it does make quite a bit of sense to simply wait for opportunities to get involved in the market when it becomes “cheap.” If we did break down below the 50 day EMA, then I would be looking to buy puts, not actually flat-out shorting the market, as Jerome Powell stated on Sunday that the Federal Reserve is going to continue to flood the market with cheap and easy money, and therefore I think it is difficult to imagine a scenario that is worth getting involved to the downside.
At this point in time, it is simply a matter of letting this market come back to lower levels that you can take advantage of. If we simply break out to the upside than we are probably going to see a move towards the 4200 level, but I would be much more comfortable buying dips.