I look at every rally as an opportunity to get short yet again as soon as we see signs of exhaustion.
The S&P 500 bounced significantly from the 3900 level, which is a large, round, psychologically significant level, and an area where we’ve seen a little bit of support. By the end of the day, we ended up forming a bit of a hammer, so I think we are going to enter a bit of consolidation in this area. The 4100 level above is resistance, and therefore I think we are going to bang around in this 200-point range in the short term.
While the market is oversold, the reality is that there’s no real fundamental reason to think that the market is going to turn around for a bigger move, and I think that anytime the S&P 500 rallies from here, you should be looking for selling opportunities. I think that the markets will continue to be noisy and focus on the fact that there is a lot of inflation out there that the Fed will be fighting. By finding inflation, they will be raising rates, thereby making money much more expensive for gamblers on Wall Street.
If we were to turn around and break down below the 3800 level, it would break down below the recent low, and of course the bottom of the hammer from a couple of sessions ago. If that does get violated, it’s likely that we will continue to go much lower. It’s worth noting that we had recently formed the so-called “death cross”, which is when the 50-day EMA crosses below the 200-day EMA. Quite often this is a very late signal, but a lot of people will pay close attention to it. Ultimately, I think this is a market in which if you get a bit of a rally, you have to be looking for signs of exhaustion to jump upon. Even if we broke above the 4100 level, there is significant resistance at the 50-day EMA, as well as the 4300 level. If we were to somehow break above that 4300 level, then it’s likely that the market will go much higher. Until then, I look at every rally as an opportunity to get short yet again as soon as we see signs of exhaustion. Forward guidance by a lot of CEOs on Wall Street has been miserable, and I think that continues the way up on the index as well.