Even though there are a lot of technical reasons to like this chart, I just don’t like this rally.
- The S&P 500 did rally a bit during the trading session on Tuesday, bouncing from the 4100 level.
- This area was previous resistance, so does make a certain amount of sense that there would be market memory here. Furthermore,
- Jerome Powell spoke during the session and didn’t say too much stuff set the market, so the market traders continue to look for some type of narrative to continue to buy into the market. At this point, I think the 4100 level is shown just how important it can be.
If we were to break down below the 4100 level, that is very likely that we see the S&P 500 trying to get back down to the 200-Day EMA and the downtrend line, which coincides with roughly 4000. The 4000-level course has a lot of psychology attached to it, but I think given enough time we probably would see buyers try to jump back into the market at that level. Furthermore, you have the 50-Day EMA coming into the picture just below, threatening to form a “golden cross.”
Even though there are a lot of technical reasons to like this chart, I just don’t like this rally. I think there are a lot of concerns out there that the market is completely ignoring, so at this point, I have been very cautious with my trading. Yes, it looks like you should be buying dips at the moment, but if we were to give up the 4000 level, that would be a significant shot across the ballot again and could send this market much lower. Alternatively, if we were to break above the 4200 level, then it’s likely that we could go much higher, and will completely ignore the Federal Reserve and economic reality.
It would not be the first time that the market has done that, so it most certainly could be a realistic scenario. All things being equal, this is a market that will more likely than not continue to be very choppy, and I think you need to look at it through the prism of volatility being a mainstay of the market, so, therefore, you will need to be somewhat cautious about your position sizing as you could get whipped around. However, one thing that you cannot deny is that it seems like the market is very resilient at this point.
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