There is no real reason to be a buyer of the S&P 500 at the moment because the entire fundamental outlook for earnings, inflation, and monetary policy all seem to be looking like they are going to work against higher movement to the upside

The S&P 500 futures markets had a bit of limited trading during the Monday session, as it was Juneteenth in the United States. Because of this, you can only read so much into the candle, but it’s probably worth noting that Friday was an attempt to stabilize the markets. The 3700 level is an area that seems to be important in general, as it is a large, round, psychologically significant figure, and an area where we had seen action previously.

However, any rally in this index is more likely than not going to end up being an opportunity to get short yet again. After all, the market is in a downtrend for multiple reasons. The first one of course is the Federal Reserve and its monetary policy, as they are going to get extraordinarily tight and are showing no signs of changing their attitude. Because of this, Wall Street will have to figure out how to swim on its own, something that they have not had to do for the last 14 years.

The 3800 level above is where we have seen lots of pressure previously, and therefore I would pay close attention to any rally in that area that shows signs of failure. Even if we break above there, the 50 Day EMA is racing to lower levels and should offer a significant amount of downward pressure. It is currently at 4050 and drifting much lower. The market is going to continue to see a lot of pressure, and of course risk aversion. Granted, we are oversold and we could get a little bit of a bounce, but that would be something that you would expect after this type of brutal selloff. In this environment, I do believe that it is only a matter of time before exhaustion kicks in, and you can start shorting again. On the other hand, if we were to break down below the bottom of the candlestick from the Friday session, then it’s likely that we simply drop further.

There is no real reason to be a buyer of the S&P 500 at the moment because the entire fundamental outlook for earnings, inflation, and monetary policy all seem to be looking like they are going to work against higher movement to the upside and therefore it’s likely that it’s only a matter of time before we fall apart again.

Ultimately, the market will continue to fluctuate with risk appetite, which is horrible at this point.

The German DAX Index gapped higher in the futures market on Friday to show signs of promise. However, we have seen a lot of resistance near the €14,250 level again and then sold off to form a shooting star. This suggests that we are going to continue the overall downtrend, and it is likely that the DAX will find plenty of selling pressure. The gap that we kicked off the day with still has not been filled,  at the vsoery least, you would expect that to happen.

If we break down below the gap, then the market is likely to go looking to the €13,750 level, maybe even the €13,600 level underneath that. That is where we had bounced from previously but clearing that allows much more selling going forward. Furthermore, we are in a down-trending channel, and it suggests at this point that we may accelerate that move.

Keep in mind that Germany is very likely heading into a recession, so it makes sense that the DAX will continue to see plenty of pressure to the downside. On the other hand, if we were to turn around and break above the 50-day EMA, which is currently at the €14,350 level and shrinking, we could see a complete turnaround, but at this point I just do not see the momentum in this market. This is especially true after the lack of follow-through on the move higher. Ultimately, the market will continue to fluctuate with risk appetite, which is horrible at this point.

When I look around the world, it is obvious that there are a lot of indices that all look very weak, so I think the DAX will not be any different. The overall attitude of equities around the world continues to be very soft, and with the energy concerns, inflation, and lack of growth in the European Union, Germany will be the first place people start to short as it is Europe’s largest economy. Furthermore, we have the war going on in Ukraine, which of course has a lot of people concerned about what could happen with the European economy on the whole. The ECB is essentially stuck, and at this point cannot do much, so I think equities are at the mercy of short-sellers.

The market continues to see a lot of indecision.

The DAX has initially pulled back just a bit during the trading session after gapping higher, filling the gap, and then turning right back around. Ultimately, this is a market that looks as if it will test the €14,250 level. Ultimately, if we can break above that little consolidation area, then the market is likely to go looking to the 50 Day EMA above, which of course will attract a certain amount of attention as well. We are in a downtrend, and any rally at this point in time is likely that signs of exhaustion will be jumped upon.

If we were to turn around a breakdown below the hammer from the Thursday session of last week, then it is likely we could go looking to the €13,500 level, perhaps even down to the €13,000 level. I think the DAX is a market that is going to continue to see trouble, and as a result, I think this bounce is more likely than not going to be looked at with a certain amount of suspicion. The 50 Day EMA being broken to the upside could open up a move to the €14,900 level, essentially where the 200 Day EMA is sitting in the same general vicinity.

The market will continue to see a lot of volatility, but ultimately, I think we are getting closer to a definitive decision. If you believe in the idea of a falling wedge being an opportunity, then a break higher could lead to that €14,900 level. On the downside, if we do break down below the massive hammer from last Thursday, I anticipate that the momentum will start to pick up as it will be obvious to most traders out there that things are starting to fall apart again.

Keep in mind that the DAX is highly sensitive to risk appetite in the futures market and of course everything that is going on in the European Union. The energy issue in Germany is going to continue to be a major issue going forward, so you have to pay close attention to those noisy headlines as well. At this point, I think this is a market that continues to be noisy, so pay close attention to signs of exhaustion if and when they occur. The market continues to see a lot of indecision.

The quicker the rate of change, the more likely it is to cause problems for the stock market overall.

The S&P 500 futures initially fell during the trading session on Monday, reaching the 4360 handle before turning around. By doing so, it looks as if the market is trying to pick itself back up, and perhaps continue the overall consolidation that we have seen for the last couple of days. That being said, it is also worth noting that the candlestick was a hammer, and that could send this market looking to the 50 Day EMA above. That indicator currently sits at the 4450 handle, which is an area that a lot of traders have been paying close attention to, and that should be an area where we see sellers again.

The market breaking down below the bottom of the hammer for the session on Monday could open up fresh selling, perhaps reaching the 4300 level, followed by the 4150 level. The market continues to struggle with the idea of inflation, and what the Federal Reserve will have to do to fight it. The interest rates are going higher, so now the question is whether or not the interest rates scream higher, or if they simply gradually go higher. The quicker the rate of change, the more likely it is to cause problems for the stock market overall.

The S&P 500 has been running on liquidity for 14 years and does not necessarily have anything to do with the real economy. Because of this, the only thing that matters will be what happens with the Federal Reserve. The markets continue to have the occasional bullish day where people start to think that the Federal Reserve will not raise interest rates aggressively, but with so many the Federal Reserve speakers this week is going to be very noisy, and therefore it is very likely that we will continue to see this market get whipped around.

If a recession does, rather soon, that will continue to put negativity in this market, and thereby cause major issues. It would make a certain amount of sense to retest the bottom, so I do think that is ultimately what happens. However, if we were to take out the 4500 level on a move higher, then it is possible that we could see this market look to reach the 4600 level, and perhaps even turn the whole thing around. That does not seem the most likely of outcomes right now though.

The markets continue to be very noisy, especially as we have seen so much in the way of concern with the economy, the war, and inflation.

The German index has pulled back a bit during the trading session on Wednesday to reach the 50 Day EMA again. This is an area that we had broken through during the previous session, so now we need to determine whether or not this is a simple pullback and retest it, or if it is the market acknowledging the area around the €14,900 level as significant resistance?

The DAX has broken higher over the last couple of days, and this suggests that perhaps a bullish flag has just kicked off. However, we need to get above the 200 Day EMA to confirm this. We are in an area that has a lot of noise, to say the least, and therefore I think you will probably get more of a sideways choppy action out of the market than anything else. If we were to break down below the €14,250 level, then the market more likely than not will unwind completely. It does look as if the market is going to continue to see a lot of volatility but given enough time it is possible that we see a decisive move. I believe that the next couple of days will give us an idea as to where we are going long term.

Keep in mind that the DAX has been a bit overextended, but we also recently had a bit of consolidation, which suggests that we may have worked off some of the froth. All stock markets that I follow right now I have been extraordinarily overdone in the short term, but that does not mean that they can continue higher given enough time. The candlestick from the trading session on Wednesday wiped out all of the gains from Tuesday, so waiting to see where we go next is the best way forward.

The market is currently sitting between the 50 Day EMA and the 200 Day EMA, which typically leads to some type of squeeze. It is all lining up for a bigger move, and now we need to see which direction we break. The markets continue to be very noisy, especially as we have seen so much in the way of concern with the economy, the war, and inflation. Just during the Wednesday session, estimates of GDP and Germany were taken down quite drastically.