The S&P 500 futures markets had a bit of limited trading during the Monday session, as it was Juneteenth in the United States. Because of this, you can only read so much into the candle, but it’s probably worth noting that Friday was an attempt to stabilize the markets. The 3700 level is an area that seems to be important in general, as it is a large, round, psychologically significant figure, and an area where we had seen action previously.
However, any rally in this index is more likely than not going to end up being an opportunity to get short yet again. After all, the market is in a downtrend for multiple reasons. The first one of course is the Federal Reserve and its monetary policy, as they are going to get extraordinarily tight and are showing no signs of changing their attitude. Because of this, Wall Street will have to figure out how to swim on its own, something that they have not had to do for the last 14 years.
The 3800 level above is where we have seen lots of pressure previously, and therefore I would pay close attention to any rally in that area that shows signs of failure. Even if we break above there, the 50 Day EMA is racing to lower levels and should offer a significant amount of downward pressure. It is currently at 4050 and drifting much lower. The market is going to continue to see a lot of pressure, and of course risk aversion. Granted, we are oversold and we could get a little bit of a bounce, but that would be something that you would expect after this type of brutal selloff. In this environment, I do believe that it is only a matter of time before exhaustion kicks in, and you can start shorting again. On the other hand, if we were to break down below the bottom of the candlestick from the Friday session, then it’s likely that we simply drop further.
There is no real reason to be a buyer of the S&P 500 at the moment because the entire fundamental outlook for earnings, inflation, and monetary policy all seem to be looking like they are going to work against higher movement to the upside and therefore it’s likely that it’s only a matter of time before we fall apart again.
