Simply shorting the index is a good way to have your account turn upside down if the Federal Reserve comes out and says something or does something in order to save Wall Street yet again.
During the trading session on Wednesday, we saw the S&P 500 strengthen again to make an all-time high. The FOMC Meeting Minutes came out during the day, and some traders were just a little bit hesitant to get involved. However, by the end of the day, we had seen buyers jumping back into the market and reach even higher. Ultimately, the market tends to move in 200-point increments, which sets up a potential run towards the 4400 level.
Speaking of 200-point increments, the 4200 level under should continue to offer significant support, especially as the 50-day EMA is sitting in that same general vicinity. Ultimately, there is also a nice uptrend line underneath, so that should all come together to continue to offer plenty of support. If we were to break down below the uptrend line, then it is possible we could go looking towards the 4000 handle. The 4000 handle is a large, round, psychologically significant figure, which also features a little bit of a gap. It is not until we break down below that level that I would be concerned about the overall trend. Even then, I would not be a seller of the S&P 500, because the Federal Reserve tends to pay far too much attention to it.
With that being said, a move below the 4000 level would open up the possibility of buying puts, because at least at that point I could be cautious about how much risk I am taking. Simply shorting the index is a good way to have your account turn upside down if the Federal Reserve comes out and says something or does something in order to save Wall Street yet again. This has been the way they have behaved over the last 13 years, and I just do not see that changing overnight. The “Powell put” seems to be in effect still, so at this point in time it is a buyer on the dip market, and it is very likely that we will hit 4400 rather quickly. Breaking above there opens up the possibility of another 200-point move, but I believe that the 4500 level will offer a little bit of psychology as well, meaning that we may slow down in that area for the short term.