The S&P 500 has gapped lower during the trading session on Tuesday and then went sideways at that point. Ultimately, this is a market that is still very much in an uptrend, as we have seen the uptrend line and the 50 day EMA hold. The uptrend line of course is a very strong signal that we should be going higher, so if we were to break down below both the uptrend line and the 50 day EMA, it is possible that the market could break down even further. If it does, then the market probably going to go looking towards the 4200 level underneath, which is a large, round, psychologically significant figure, and an area where we could see a little bit of a bump.
Breaking down below the 4200 level then opens up the possibility of going down to the 4000 handle, which is a large, round, psychologically significant figure, where the 200 day EMA sits. I imagine there are probably quite a few options barriers in that general vicinity, so I would anticipate that we may get a bit of a fight. Breaking down below the 4000 level does not seem to be very likely this point, unless of course there is some type of major change in attitude. If the market were to see that area as being broken, then at that point in time I anticipate that the Federal Reserve would get involved.
To the upside, the all-time high is just above, so I would not get too far ahead of the curve when it comes to the idea of the market breaking down. The idea that the market is suddenly going to turn around drastically is a bit of a stretch, but even if we were to fall as far as 4000, that is simply a roughly 10% correction from the highs. On the other hand, if we were to break above the highs, then the market is likely to go looking towards the 4500 level, followed by the 4600 level after that as the market does tend to move in 200 point increments. The market will continue to be very noisy, but I do think that there are a lot of value hunters underneath that are just waiting to jump into the market and take advantage of value.
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