- The S&P 500 has done very little during the trading session to the upside, as we have simply drifted lower during most of the Wednesday session.
- It makes quite a bit of sense, since nobody is really putting money to work, and most traders are probably deep in the red this year, as Wall Street tends to have an upward bias.
The market sits at the 3800 level, which of course is a large, round, psychologically significant figure, and a lot of people will pay attention to it. If we break down below the hammer from the previous week, that could send this market much lower, perhaps soaking up even further selling pressure. In that scenario, I anticipate that we could investigate the 3700 level, possibly down to the 3600 level.
Rallies now must deal with the 50-Day EMA which sits just at the bottom, right around the 3900 level. The 3900 level is an area that has been important more than once, so I would expect a bit of “market memory” in that area. Signs of exhaustion in that area could be shorted from what I can tell, but we could bounce even further, perhaps trying to get back to the 200-Day EMA, which is right near your 4000 level.
Looking to Fade Rallies
The 4000 level is also backed up by a downtrend line, so that of course is something worth paying attention to as well. With that being the case, I think this is a scenario where the market is a “fade the rally” type of situation, but I think that’s the case with most stock indices and single stocks for that matter.
Keep in mind that volumes are very thin at this point in the year, so for the most part you shouldn’t be trading. However, people who will ignore this advice should at least pay attention to the advice that you are looking for short-term back-and-forth moves, with a more negative bias than anything else. Sudden announcements or news events could throw the market into disarray, so you need to be cautious with your position sizing. I understand there is a certain amount of temptation to put a huge position on and try to collect a few points, but one that doesn’t work, it’s a disaster.
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