- The S&P 500 E-mini contract has dropped initially during the trading session on Tuesday, breaking below the crucial 3600 level.
- However, we have bounced a bit above there, recovering about 20 handles since then.
- With this being the case, the market is likely to continue to see a lot of volatility, but I think now it is all about the Federal Reserve and what they are going to do going forward.
- Quite frankly, the market is only worried about whether the monetary policy is going to tighten, or if it’s going to loosen further.
The market will have recently been consolidating, so if we do bouncer here, I think it’s only a matter time before the 3800 level would offer a little bit of resistance. That’s an area that we have pulled back from and has been supported in the past. Ultimately, I think we are going to consolidate in the short term until we get the CPI numbers on Thursday which could push us over the edge as far as inflationary concerns or address, or perhaps even breakout to the upside if it comes in much lighter than anticipated.
Volatility Ahead
Ultimately, I think the only thing you can probably count on is going to be a lot of volatility, but I do think that it is probably only a matter time before we see this market breakdown. After all, the S&P 500 must worry about a global economy that is essentially falling apart and slowing down. Remember, the biggest companies in the S&P 500 will continue to struggle with slowing European markets, and even Asian markets.
If we were to break above the 3800 level, then it’s possible that we could go looking to the 50-Day EMA which is sitting just below the 3900 level. That is a dynamic resistance. A lot of people will be monitoring closely, and therefore I think we’ve got a situation where it’s only a matter of time before you can fade. The alternative of course is that we simply break down, and that opens up a move down to the 3500 level rather quickly. In that scenario, we could blow through there and go much lower. However, this is a market that I think continues to see plenty of volatility and therefore you need to look for opportunities short from higher levels to get the chance.
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