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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Keep in mind that you should be looking for value on dips, as they should continue to appear.

The West Texas Intermediate Crude Oil market rallied early on Tuesday as we continue to see upward momentum. That being said, we did give back a little bit during the day and the market may need to pull back in order to find a bit of footing to continue the upward momentum. Keep in mind that the market has just broken out of a major triangle, so a lot of people will be paying close attention to that.

When a market breaks out of an area that is as obvious as this one was, there tends to be a lot of short-covering, as well as people jumping in to take advantage of “FOMO.” I do think that crude oil will continue to go higher based on energy demand with the reopening of trade and the situation in Ukraine deteriorates. There seems to be no real chance of peace, so the Russian oil supply will continue to be a major concern. As long as that is the case, there will be a lot of people out there willing to buy crude oil.

All of that being said, there is an argument to be made for buying dips, as the $110 level should offer support based upon not only psychology, but the fact that it has been structurally important a couple of times in the past. The market will probably need to find a reason to pull back, even if it is just simple profit-taking. Markets are extraordinarily volatile right now, so do not be surprised at all if we get some type of massive move lower, followed by a rip higher.

Alternatively, we could break above the top of the candlestick for the trading session on Tuesday which would be bullish in and of itself. At that point, the market could very well go looking to reach the $120 level, which would be my longer-term target. Obviously, market participants continue to be very skittish, so you cannot go “all in” into anything, let alone something as volatile as crude oil. It is more likely than not we will continue to make a fresh, new high, but that does not mean that we go straight up in the air. Keep in mind that you should be looking for value on dips, as they should continue to appear.