- The S&P 500 Index rallied a bit on Tuesday as we continue to see a lot of volatility and upward momentum.
- The market is going to have a serious look at the 200-day EMA, which is an area that does tend to attract a certain amount of attention.
- If we can break above the 200-day EMA on a daily close, that is the very definition of an uptrend for some traders, so it is worth paying close attention to.
On the other hand, if we break down from here, then it could be the end of the uptrend, especially as we are hanging around the crucial 4300 level on the E-mini contract. That would obviously attract a lot of attention in and of itself, so it’s worth paying close attention. If we do break above the top of the candlestick for the trading session on Tuesday, then I think the market is going to continue to “melt-up.”
It's All About Monetary Flow
There are a lot of reasons to think that stock markets will probably drop, but quite frankly fundamentals don’t matter anymore. You should keep in mind that the stock market is about monetary flow these days and not so much about fundamentals. Because of this, it comes down to the bond market and what people believe the Federal Reserve is going to do. At this point, it looks very much like the market is going to continue to see the Federal Reserve as being relatively dovish, and that suggests that equities should continue to go higher.
If we do break down from here, then it’s likely that we will go looking to the 4200 level for significant support. Breaking down below there could kick off even more selling pressure, but right now it doesn’t seem very easy to make that happen. That being said, the market is also going to have to pay close attention to risk appetite on the whole, because there is a huge correlation between all markets at this point.
If we do break above the top of the candlestick for the session on Tuesday, it’s very possible that we may be talking about a 4500 print before it’s all said and done. That’s an area where I would expect to see a lot of psychological resistance.
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