S&P 500 Forecast: Falls Apart on Tuesday

What we have is a situation where the market needs to bounce to start shorting again.

  • The S&P 500 initially tried to capture the 200-day EMA but gave it up rather quickly.
  • As the CPI numbers came out hotter than anticipated, stock traders lost their minds and started shorting the market.
  • A lot of people had bought into the narrative that perhaps the Federal Reserve was going to pivot sooner rather than later, but with Core CPI coming in at twice what was expected, it’s not a huge surprise that people freaked out.

Markets do not go straight down forever. What we have is a situation where the market needs to bounce to start shorting again. We lost over 3% right away, and that is not something you want to be chasing. It’s not to say that we can’t go straight down from here for a while, but the reality is that you do not want to be the bag holder.

Rallies Seem Suspicious

If we break down below the 3900 level, the S&P 500 will come to unravel even further. This is a very ugly candlestick but at the end of the day, this is a market that clearly has made up its mind for the short term, so I think we have a situation where you are feeding short-term rallies and waiting to see whether the 3900 level gets crushed. If it does, we will retest the lows near the 3700 level, and possibly beyond.

The size of the candlestick tells you a lot of what you need to know, and a candlestick like this typically gets some type of continuation. Any rally at this point I would have to look at through the lens of suspicion because the whole rally itself seemed a bit suspicious. It wasn’t that long ago when everybody was telling us how the stock market selloff was over, but this is exactly the type of thing you get in a market that is still very bearish. The bear market rally shakes everybody out that was short, and then sucks everybody back in, only to chew them up and spit them back out. There is a lesson in this chart if you’re willing to learn it. At this point, I have no interest in buying the stock market, because it’s clear that we have kicked into the next leg lower.

S&P 500

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Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.

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