A lot of people will continue to see this as a situation where we are going to have to see what the Federal Reserve is going to do.
- The S&P 500 had an interesting session on Thursday, dipping below the 3950 level.
- However, we have turned around to show signs of life and it looks as if the market is going to continue to see a lot of noise in this area.
- The fact that we turned around should not be a surprise, because we have the jobs number coming out on Friday, and therefore a lot of risks will be put into the market rather quickly.
A lot of people will continue to see this as a situation where we are going to have to see what the Federal Reserve is going to do. With the job number having such an influence on what inflation expectations may be, the next 24 hours can be very noisy. Because of this, I would not be surprised to see a little bit of short covering, because Wall Street almost always has one way or another to see hope in any situation.
Waiting for Opportunities to Short the Market
That being said, the 50-Day EMA sits near the 4070 level and is slowly lower. The 50-Day EMA should be a significant amount of resistance, but at the first signs of exhaustion, the market will almost certainly start shorting again. Even if we break up the 50-Day EMA, the market is likely to look into the 200-Day EMA which is near the 4200 level at that point, we could see a lot of resistance and if we were to break above there obviously things would change. Nonetheless, one of the things that you can take away from the candlestick is that perhaps the market, in general, decided to cut short positions ahead of this volatile number. That makes quite a bit of sense, so I only read so much into this hammer, which of course does sit right on top of previous resistance so it all ties together quite nicely.
Keep in mind that Monday is Labor Day in the United States, so even if you do have the opportunity to trade electronic contracts, the underlying index itself will be doing much. That being said, I think this is a market that you are looking to fade rallies or break down below the bottom of the hammer for the Friday session. I do think that we go looking to the lows again, but we are a little oversold.