The S&P 500 did very little Wednesday, and considering how rough the selloff was on Tuesday, one has to look at that as a bit of a moral victory. The S&P 500 continues to struggle with a lot of crosscurrents, not the least of which would be the inflation concerns, as interest rates continue to skyrocket in the United States. Furthermore, there are a lot of other things out there that companies are going to start talking about that people won’t want to hear.
Supply chains continued to be stretched and stressed, and this is not good for the economy. Quite frankly, I think that a lot of people are starting to subscribe to the “bullwhip effect” theory which suggests that we are going to constantly be in a state of flux as to the health of the economy. In other words, there’s nothing that’s remotely close to being certain. A lack of certainty is toxic for stock markets and considering that so many companies have to start talking about their comps being difficult to overcome, it does make a lot of sense that stocks will start to lose ground.
The 3800 level has offered a little bit of support during the day, but if we manage to break down below there then I think it opens up the possibility of a move down to the 3700 level. This would not surprise me at all, as we were there just about two weeks ago. This is a downtrend that has a lot of things working against it, so it’s not a huge surprise to see sellers come back into the market as they did during the previous session. I do believe that the Federal Reserve will have to step in and save everyone sooner or later, but I think that’s much further away than a lot of people anticipate.
The 50-day EMA is currently sitting at the 4000 level and dropping. It is because of this that I will be paying close attention to the 4000 level if for some reason we get there soon, but I just don’t see that happening. Wednesday was a very choppy and sideways session, showing a severe lack of conviction as to where we might be going next. That being said, the downtrend is pretty obvious.
