- The S&P 500 rallied significantly during the trading session on Wednesday, testing the 3980 level.
- This is a market that continues to be very noisy and suggests that we are going to see a lot of volatility.
- This is a very strong candlestick, and it did bounce from an area that could be thought of as somewhat supportive, as the 3900 level previously had been resistance.
Nonetheless, the fundamental outlook for the markets and the economy has not changed in the slightest. Because of this, I think it is probably only a matter of time before the S&P 500 falls, but we may need to bounce a bit to start shorting again. I have no interest whatsoever in trying to buy this market because quite frankly, things have gotten a little bit stretched. The size of the candlestick does of course suggest that we make it a little bit of follow-through, but at the end of the day, I think it’s probably only a matter of time before we see exhaustion.
Looking for Opportunities to Short this Market
It is at that exhaustion level that I am more than willing to start shorting, perhaps sending this market back down to the 3900 level. Another way to look at this is that we may see a sideways market, which would make a certain amount of sense as well, since there’s so much in the way of confusion. Regardless, you need to be cautious with your position sizing as the markets have been erratic, to say the least, jumping from one extreme to the other, and I just don’t see how those changes anytime soon.
The S&P 500 will be paying close attention to interest rate markets, and you need to be very cautious if rates start to rise. That tends to be toxic for stocks and that should continue to be the correlation going forward. If we break above the 50 Day EMA, then we could make a move towards the 4200 level, which is roughly where the 200-day EMA sits. On the other hand, if we were to turn around a breakdown below the lows of the session on Tuesday, that opens more selling, perhaps down to the 3750 level. Regardless, position size accordingly and only adds to winning positions.
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