The stock market is oversold at the moment, and I think this rally is simply a way to remedy that.
The S&P 500 did rally a bit on Tuesday, showing signs of life again, but at this point it’s likely that we will continue to cease selling pressure eventually. The 3800 level is an area that could cause some resistance, due to the fact that we had bounced from there, but if we break above there, then the market is likely to go looking to the 3900 level, possibly even the 5000 level.
The S&P 500 will have to contend with higher interest rates in the United States, as the Federal Reserve is looking to tighten everything. Ultimately, the market will continue to see plenty of reasons to fall, and I just don’t see how traders will have a longer-term bullish outlook on the market, at least not at this point. The market will continue to be very noisy and I think that anytime somebody gets an opportunity to short this market, they will do so.
The 50-day EMA currently sits near the 4100 level, as it is going to continue to draw from here. If we see the 50-day EMA continues to drop from here, it will be dynamic resistance. Ultimately, signs of exhaustion will get jumped upon, and I will most certainly not hesitate to take advantage of that. The 3650 level is an area that I will be paying close attention to as well, as it has been important previously. If the market broke down below there, then it’s likely that we could go down to the 4500 level.
The Federal Reserve will continue to be very tight with its interest rates, and the market is doing everything it can to price in massive quantitative tightening. Ultimately, this is a situation that will find plenty of reasons to drop. However, I would anticipate that if the market were to break above the 4200 level, it would be a major shift in attitude, and it could be a sign that the market is finally changing trends. However, it does look very likely to happen until something changes with the Fed itself. Yes, inflation could be slowing down a bit, but it is still extraordinarily elevated and will continue to be. The stock market is oversold at the moment, and I think this rally is simply a way to remedy that.