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I do not have a lot of faith in rallies at this point, and I do think that it is probably only a matter of time before we break down quite drastically.
The S&P 500 rallied a bit on Wednesday as the Federal Reserve’s meeting came into focus. At this point, we have seen a little bit of a giveback, which does make sense considering that the Federal Reserve looks to be very tight going forward. Ultimately, this is a market that still finds a lot of trouble, and I think it will eventually break down.
Any rally at this point looks like it’s going to find trouble, especially near the 3900 level, maybe even the 4000 level. If that were to be the case, I look at a rally as an opportunity to get short yet again. Ultimately, the market will continue to see downward pressure, but if we were to break down below the 3700 level, then it’s likely that we will go down to the 3600 level. After that, the market more likely than not will go looking to the 3500 level.
The 50-day EMA has broken down to the 4100 level and is floating lower. I think the 50-day EMA wound up in dynamic resistance, so you will have to pay close attention to it. I do not think we will get above there, but if we did it has to be one of the situations where things could get noisy and go much higher. That could be a bit of a difficult move to make, but if we were to break above there it’s likely that we would see a lot of short-covering and that could cause this market to squeeze much higher. Having said that, after the market reaction during the day on Wednesday, I do not have a lot of faith in rallies at this point, and I do think that it is probably only a matter of time before we break down quite drastically.
The next major shoe to fall is going to be revisions to earnings coming from major corporations in the United States, something that has probably not been completely priced in. In other words, there is a good shot that we will see even more trouble down the road. The market continues to be very rocky, but we could get a little bit of a bounce that opens up the possibility of taking advantage of the bigger trend.
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