- The S&P 500 market initially fell during trading on Wednesday to reach down toward the 3600 level but then turned around quite drastically early in electronic trading as traders celebrated the fact that the Bank of England is going to start buying bonds.
- That’s a weird stretch, but at this point it looks like any central bank trying to do something to help any market is reason for celebration.
- It’s likely that we have a little bit of follow-through at this point, so I think you get a situation where we have further to go, and rallies will be faded.
The 3900 level is an area that’s important, and the 50-Day EMA reaching toward it should offer a bit of a barrier as well. I have no interest in getting too cute at this point, I believe that this is a market that continues to see a lot of negative headlines, but we are oversold so little bit of a bounce does make a certain amount of sense. The size of the candlestick also suggests that we have further to go, so keep that in mind as well. Ultimately, I think this is a situation where the market will run out of momentum quite quickly, so I would not try to get too cute and buy this bounce.
Market Will Eventually Rectify Itself
If we break down below the bottom of the candlestick, I think it will be yet another run on risk appetite, and it’s likely that we will continue to see a lot of volatile behavior as a result. The market has been overdone for a while, so I do think that this is a situation where we are simply seeing typical undulation of the market. We will eventually see this rectify itself but in the short term, we probably have a little further to go, especially as the end of the session started to see an acceleration to the upside, which typically means the big money is stepping in and trying to pick up a bit of value.
That doesn’t mean that the trend has changed, just that in the short term there are plenty of people out there willing to put money to work and try to pick up the market. Eventually, people will come to realize that the Bank of England has nothing to do with monetary policy in the United States.
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