The S&P 500 initially tried to rally during the trading session on Wednesday but gave back gains as it continues to look like the market is ready to go much lower. This is a market where you fade rallies, but we also have the jobs numbers are coming out on Friday, meaning that Thursday could be a bit of a lost trading session. After all, people do not want to get overly exposed to the market.
If we break down below the bottom of the candle, it’s very likely that the market is looking to the 3900 level, which is a large, round, psychologically significant figure. This is a market that every time it rallies there will be plenty of sellers to jump into the market. It’s also worth noting that the 50-Day EMA sits just below the 4100 level, and I think that will cause a lot of noise itself. Quite often, the day before the jobs report is extraordinarily quiet, and I would not expect anything different here.
Look at Rallies as Opportunities to Short this Market
- Even if we break above the 50-Day EMA, there is significant resistance near the 4100 level, and then of course the 200-Day EMA which sits just below the 4200 level.
- Market participants are more likely than not going to be pushing this market lower over the longer term, perhaps trying to reach the bottom again.
- The market breaking down to a fresh, new low would be a very negative sign, of course, therefore I think we have a situation where more money would go flying to the short side.
The jobs number will give us a bit of a heads up as to what the Federal Reserve may have to do going forward, and people are starting to wonder whether they are going to ignore any signs of weakness in the economy in order to fight inflation. If inflation continues to be sticky, it’s difficult to imagine a scenario where the market simply takes off to the upside due to the concerns out there that people will pay attention to. As far as buying is concerned, I don’t have a scenario in which I’m willing to do in the short term, and I will look at rallies as an opportunity to short this market as soon as we see signs of exhaustion.
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