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I think the volatility is going to get worse, not better.
- The S&P 500 Index rallied a bit on Wednesday as the CPI numbers came out cooler than anticipated.
- That being said, the market looks very likely to continue trying to grind higher.
- It’s worth noting that we are above the 4200 level in the E-mini futures market, and as a result, we need to recognize that we have broken through significant resistance.
- If we get any follow-through whatsoever, it’s likely that the S&P 500 will go looking to the 4300 level.
Follow-Through Likely
As the CPI number came out lower than anticipated, yields in the bond market fell a bit. That being said, it’s a bit difficult to read too much into it from one day, but it is likely that we will see a little bit of follow-through. Whether or not the market continues to go higher than that is a completely different scenario, but I think at this point we are more likely than not going to continue to see a lot of volatility, but it seems that Wall Street is willing to “climb the wall of worry.”
I do believe that eventually, we will have a significant selloff, but today was without a doubt a very positive turn of events. I’m not quite ready to call it a bullish market yet, because nothing adds up to anything that should be remotely bullish other than the possibility that Wall Street thinks the Federal Reserve is going to loosen monetary policy. This is going to cause all kinds of issues, and I think the volatility is going to get worse, not better. Just above at the 4300 level, I think there is even more resistance, not only due to the previous action but the fact that the 200-day EMA sits right there as well.
If we break down below the 4100 level again, that could be a significant fake-out, sending the market into a tailspin. Breaking below the 4100 level then opens up the possibility of a move down to the 50 Day EMA, which is near the 3950 level. Either way, I think this is going to be a very erratic market, but it’s obvious that the buyers have the upper hand in the short term. Whether they have it in the long term it still a bit of a question as we are sitting right in an area where sellers almost certainly are going to show back up.
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