The S&P 500 has fallen during the trading session to kick off Thursday, but as you can see the 50 day EMA has offered quite a bit of support, as well as the uptrend line that has been so important for so long. By turning back around and form a bit of a hammer, it suggests that the market is ready to bounce a bit. In fact, if we do bounce a bit from here, then it is likely that we will go back towards the all-time highs, and then possibly the market would break out towards the 4500 level, perhaps even all the way towards the 4600 level as this market does tend to move in 200 point increments.
If we were to break down below the 50 day EMA, I might be able to buy puts, but I would not get any more bearish than that, because the Federal Reserve has a nasty habit of jumping in and interfering in the market if they see Wall Street hurting. Remember, even though it is not explicitly stated, one of the major jobs of the Federal Reserve is to keep the banks/firms profitable, as wealth preservation is how they look at it.
On a breakdown below the 50 day EMA, I suspect that the 4200 level will be targeted, possibly even the 4000 level where I would anticipate seeing a lot of support. There of course will be a lot of options barriers at that region, and I think that traders will continue to look at the large, round, psychologically important figure as one that they can bank on. I do not think that we break down below the 4000 level, and quite frankly if we do drop down to that level it would simply be a scenario where we are having a bit of a “correction”, which is typically and classically defined as a 10% pullback. Anything beyond that would be considered to be a “bear market”, and the further that we fall from there the more likely we are to see the Federal Reserve jump in and force the issue the liquidity measures. The hammer that ended up forming for the trading session of course does suggest that we may get a bounce into the weekend, which probably would be much in the way of a surprise.
.png "S&P 500")