The S&P 500 Index rose again Wednesday as we continue to see this market recover. That being said, it’s probably worth noting that we gave up quite a bit of the gains late in the day, so the question now is whether or not we still have enough momentum to push this market higher? If we turn around and break below the 50-Day EMA, then it’s likely that we will continue the overall downtrend.
If we do rally from here, I suspect that the 4000 level is going to be an area that you need to pay close attention to. The S&P 500 is still in a strong downtrend, so one would assume that there will be plenty of sellers given enough time. The market will continue to look at this through the prism of momentum, but you also need to pay close attention to the fact that we had been oversold so a bounce makes quite a bit of sense. The 4000 level will attract a lot of attention, so if we were to break above there, then it’s likely that we could go to the 4200 level.
If we can break above the 4200 level, then the market is likely to continue going higher. If we can break above the 4200 level, it’s likely that the entire trend will change. On the downside, the 3800 level could be a target, although I think the “easy money” has already been made shortening. After all, the market had fallen quite precipitously. Nonetheless, this is a market where I’m looking for signs of exhaustion that I can jump on. However, you should also keep in mind that the Federal Reserve will have to remain quiet between now and the meeting, so we may not have as many headwinds from a psychological standpoint.
Earnings season is probably going to be a mixed bag at best, so you want to keep that in the back of your mind. I do not believe that earnings season is necessarily going to be spectacular, so it’s probably still worth keeping an eye on the downside. That does not necessarily mean that we can just jump into this market and start shorting right away, but it is certainly a market that you need to think in terms of whether or not it gets to be a bit overdone.
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