The S&P 500 has broken down again during the trading session on Thursday, as we are below the 3700 level now. At this point, the market is going to continue to see downward pressure, and perhaps threaten the 3600 level, an area that a lot of traders had been looking for over the longer term. That being said, the market has to deal with something very important tomorrow, options expiration.
Options expiration tends to make the market very noisy, so we could move in either direction, but at this point, I look at rallies as selling opportunities that we can take advantage of, as the downward pressure is so intense. The 3800 level is a barrier, with the 3900 level being a barrier after that. I believe that the market will continue to see a lot of negativity, as there are concerns about growth now, and of course, a Federal Reserve that is hell-bent on being extraordinarily hawkish.
I do not have a scenario in which I would buy this market right now, although I fully recognize that Friday could be somewhat positive due to the options expiration and quite frankly people not wanting to get involved in a short position over the weekend. However, I cannot imagine wanting to hold this position to the upside over the weekend as well. The market has been oversold for some time, but I think at this point in time it’s likely that we will eventually run out of sellers. However, that’s going to be an opportunity to get short again, so at this point I am flat of the market, and now I am looking for an opportunity to get involved to the downside yet again.
With earnings estimates having to come down, that will cause even more downward pressure on the market, but I do think at this point in time you will get the occasional risk-off rally that could be vicious because they do tend to be. Bear market rallies are often extraordinarily strong, but they are also typically short-lived. The market is going to continue to be very volatile, so keep your position size reasonable. Eventually, we will get a major flushing out of the negativity, and buyers could come into the market. However, right now is not the time and it looks like we still have plenty of downward pressure.
