The S&P 500 has gapped higher to kick off the trading session on Friday but turned around to sell off quite drastically. This was an initial knee-jerk reaction to the jobs number being a bit cooler than anticipated, sparking hopes that perhaps the Federal Reserve will consider slowing down its monetary policy. This obviously is dreamland type thinking, and by the end of the trading session, we have seen the adults enter the room.
Keep in mind that the markets will continue to be very noisy since we have a lot of questions when it comes to what is going to happen economically, but it’s obvious that nothing good is coming in the short term. Looking at the charts, the 3900 level in the E-mini contract will offer a little bit of support, as it had been previous resistance. If we can break down below that level, then it’s possible that the market could go down to the 3800 level.
Look at Rallies as Selling Opportunities
- Rallies above will continue to fight the 4000 level, but if we could break above there it should only open a nice selling opportunity on the first signs of exhaustion.
- After all, the US dollar continues to rise, which of course works against the value of stocks over the longer term.
- Beyond that, it seems as if we have a situation where US bonds continue to offer more yield than most other assets, so given enough time I think we got a situation where there’s just no real hope of the stock market taken off to the upside for a foreseeable longer-term move.
At this point, the 3600 level is more likely than not going to be the target, and it could be an area where we can see a lot of support. If we were to break down below there, then it’s likely that the market really starts to fall apart, opening up the possibility of a huge drop lower. I just don’t see how this market changes until we get central banks changing their overall attitude. I don’t see that happening with the massive inflation issues, but one trade that I’ve seen a lot of my compatriots do is go along the Nikkei 225 while shorting the S&P 500 in pairs trade. This is because of the Bank of Japan is loose with the monetary policy unlike everybody else.
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