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The macro situation is not good, but no market moves in one direction forever.
Monday was Memorial Day in the United States, so any S&P 500 Index trading will have been done after hours in the futures markets. That being said, we did try to rally a bit but it is worth noting that we stalled right at the 50-day EMA. The 50-day EMA is a rather commonly followed technical indicator, so the fact that we stopped at that point it’s likely that we will have a certain amount of technical shorting at this point.
If we turn around and break down below the 4150 level, that will be the first barrier for the sellers to get through. After that, the 4100 level then could potentially be supported. If we were to break down below the 4100 level, then the market almost certainly breaks down rather drastically at that point. Given enough time, the market would then go looking towards the 3900 level.
This has been a very bullish run over the last several days, but keep in mind that we are in a very bearish market, so occasionally you will get these massive moves higher. Bear market rallies are some of the most vicious ones, but they are particularly tricky due to the fact that they also tend to sell off just as rapidly. Even if we do try to go higher at this point, it’s really not until we break above the 4300 level that you have the “all clear” for a trend change. What’s also interesting about that area is that the 200-day EMA sits just above it as well, so I anticipate a huge battle in that area. Yes, the S&P 500 was oversold, but all of the fundamental reasons for this market to fall remain intact, and is difficult to imagine that things have suddenly changed. Yes, interest rates have dropped a bit in America, but that is simply because people are starting to buy bonds. Eventually, the market will figure that out, and start to drop again. However, if we break above the 4300 level, we have to follow the price and stop arguing. The macro situation is not good, but no market moves in one direction forever, so I think what we have seen here has been a little bit of a relief rally more than anything else.
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