- Monday's trading session saw a little rebound in the S&P 500, suggesting that a relief rally may be imminent.
- But this is happening in the context of ongoing market volatility, which implies that the market could move both up and down.
- The 200-Day Exponential Moving Average (EMA) is an important technical analysis level that can help define the overall market trend, thus it is important to keep a close eye on it in such a circumstance.
Though it may eventually break down to the 200-Day EMA, the 50-Day EMA is now positioned above the 200-Day EMA. This kind of thing could lead to what's known as the "death cross," which is a thing that usually gets a lot of attention in the financial markets. It's crucial to remember that a short-term rise, particularly given that we are presently in the middle of Q3 earnings season, is more likely to draw sellers back into the market and heighten market volatility.
In addition, several geopolitical issues, like the ground battle between Israel and Hamas, are raising market anxiety overall. It is also difficult to imagine a situation in which investors are keen to enter and hold positions in the market at this point due to worries about interest rates. A short-term rally could occur, but it is unlikely to indicate a significant change in the general direction of the market.
A Clearly Defined Downtrend Channel Exists
Looking at the market chart, it is apparent that a clearly defined downtrend channel exists, with the market presently situated at its lower edge. This alignment points to some rationality in expecting a temporary reprieve. However, it would be viewed as extremely unfavorable and may lead to a further loss, possibly even below the 4000 level, if the market broke below the bottom of the previous Friday's candlestick.
With all of this being the case, I am bearish but also recognize that it is going to be a scenario where their markets aren’t going to be able to hang onto gains through all this noise. The markets continue to wrestle with a handful of issues, and of course, the unstable noise coming out of the news will cause problems for bulls. In the end, I think this will remain a short-term trading environment.
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