The S&P 500 rallied significantly on Friday as we are continuing to see a lot of noisy behavior in this market, but a lot of chasing each dip that occurs. After all, this is getting close to the end of the year, and we often see money managers chasing returns for their clients. The market will continue to have more of an upward slant, as this becomes a self-fulfilling prophecy, as markets show a proclivity to rally at this point in time. If we can break above the 4740 handle, that will probably bring in more of a squeeze to the upside, offering the chance to go towards the 4800 level.
At this point time, every short-term pullback will be bought into, especially with the 50-day EMA offering so much in the way of support. The 50-day EMA currently sits at the 4584 handle and rising. Underneath there, we have the significant 4500 level offering support, so do not necessarily think that it is a scenario where we would see the market break down below there. Quite frankly, the 4500 level is not only a significant support level based upon the recent action, but it is also a psychologically important figure.
As long as the Federal Reserve sees stability in the market, they will have no real interest in trying to change its tapering situation, but if we see a sudden breakdown, then it is very likely that we would see plenty of jawboning by the Federal Reserve in order to save their friends on Wall Street. While they do not explicitly say it, we have seen over the last 13 years that the Federal Reserve will save Wall Street if we get some type of massive breakdown. After all, they justify the action of protecting indices due to the fact that so many pension plans are attached to them. Nonetheless, it does not look like we are going to break down anytime soon, especially as we have seen such a bullish close at the very highs of the days on Friday. Market participants continue to look very positive and comfortable getting long. I do think that we may get a little bit of volatility towards the end of the year, but that is probably more to do with the lack of liquidity than anything else.
