The market will continue to see plenty of volatility, so at this point I think we have a situation where you need to be very cautious about position sizing, but I still favor the downside.
- The S&P 500 re-many contracts are barely hanging on to support at this point, as it looks like the market is questioning whether or not we can continue to see markets rise in the face of rising interest rates.
- I do think at this point we are clinging onto a significant support level, as it was significant resistance previously.
- In other words, this is more likely than not going to be a situation where we get a short-term bounce.
That bounces more likely than not will continue to be a selling opportunity, especially with the 50-Day EMA sitting just below the 4100 level, which should offer a certain amount of psychological and technical resistance. Ultimately, I am looking for an opportunity to fade short-term rallies, as we are a little oversold at this point. Even if you were to tell me that the market was going to bounce during the Wednesday session, I would look at that as an opportunity to sell from higher levels, not necessarily a reason to try and place a countertrend trade.
Be Very Cautious About Position Sizing
It is worth noting that the market turned around to show some life. The candlestick is a bit neutral, so it does suggest that at least we are not quite ready to fall apart at this point. That doesn’t mean that we won’t get there eventually, but there is always a certain amount of a bid in the stock market it seems. The market breaking down below the bottom of the candlestick would be rather negative, but I don’t think that happens without some type of fundamental shift or surprise announcement.
If we were to break above the 50-Day EMA, then I believe that the 4100 level comes into the picture as a potential barrier. At this point, I just don’t see a situation where you’d want to be a buyer of stocks, and therefore it’s likely that we would see any attempt to rally as something that most people will not be willing to put money in. In fact, it’s worth noting that volume has been much thinner during up days than down, which of course is a hallmark of bear markets in general. The market will continue to see plenty of volatility, so at this point I think we have a situation where you need to be very cautious about position sizing, but I still favor the downside.