The S&P 500 has rallied significantly after the Federal Reserve meeting on Wednesday, as traders rejoice that the interest rate hike was only 75 basis points instead of 100, which was feared. There are a lot of “what if’s” in this market, so we need to pay close attention to what happens next. After all, Jerome Powell did suggest that perhaps they will have to be somewhat data dependent when they are looking at inflation.

The size of the candlestick does give us a bit of a heads up as to the fact that there is plenty of momentum, so what I suspect is that we are going to rally a bit, and then fall right back down. Looking at this chart, I think there is a lot of noise between here and the 4200 level, which is a major area of resistance. If we were to break above the 4200 level, then it could turn the tide when it comes to the trend, opening up more of a “buy-and-hold” scenario. Ultimately, I don’t think that’s likely to be the case, but it’s always a possibility. 

If we turn around a break below the 50 Day EMA, that opens up the possibility of significant selling pressure, opening up a move down to the 3800 level. If we break down below there, then it’s likely that we go even lower, perhaps down to the 3700 level. Regardless, I think what we’ve got is a situation where you will continue to see volatility, and perhaps we just got a little overdone to the downside. With that being the case, it’s likely that we will continue to see a little bit of a shot higher, followed by significant selling pressure.

It’s worth noting that the market is going to be getting GDP numbers on Thursday, and it’s likely that we will see plenty of volatility after that as well. All things being equal, this is a market that has been bullish, but given enough time will probably turn things around and show signs of negativity. I would be cautious with my position sizing, because I do not think that the volatility is going to remain low for any significant amount of time.

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The buyers are becoming a bit more aggressive.

The US dollar has pulled back a bit during the trading session on Thursday as the 1.31 level against the Canadian dollar continues to cause resistance. If we were to break above there, that would obviously be a very bullish sign for the greenback, and a negative one for the Canadian dollar. That being said, it’s worth paying close attention to the crude oil market, because the Canadian dollar is so highly levered to it.

While the US dollar pulled back, the crude oil markets recovered a bit during the day. However, it’s worth noting that the crude oil market, specifically the West Texas Intermediate Crude Oil market, pulled back from a previous uptrend line, suggesting that we may get a little bit of a pullback. It will also continue to have to pay close attention to the jobs number that is coming out on Friday morning, which will cause a lot of noise in the greenback.

Speaking of the jobs number, it’s worth noting that both countries will produce their jobs number at the same time on Friday morning, so this will be a particularly chaotic pair. Underneath, the 1.2850 level underneath will be supported, as the 50 Day EMA sits right there as well. Ultimately, this is a market that will continue to see a lot of noisy behavior, but if we were to break down below 1.28 at all, then it’s likely that we could go to the 200 Day EMA, possibly even the 1.26 level which is the bottom of the overall of trending channel.

If the oil markets do in fact break down, that might be the catalyst for the US dollar to finally break out against the Loonie. If and when it does, I anticipate that this market goes higher, perhaps reaching the 1.35 level over the longer term. Keep in mind that this pair is rather choppy, which makes quite a bit of sense considering that the cross-border traffic between the two countries is a massive amount of cash flow. Furthermore, the oil component against the greenback is not as strong as it once was, so that has mitigated some of the previous volatility. Regardless, it’s worth noting that when we pulled back, we did not go all the way to the bottom of the channel, so that does suggest that perhaps the buyers are becoming a bit more aggressive.

Ultimately, I prefer the US dollar against almost all currencies, this one included.

• The AUD/USD currency pair went back and forth Wednesday
• The pair continues to dance around the crucial 0.68 level.
• It’s likely that we will end up seeing further downside pressure.
• The Australian dollar is highly levered to the commodity markets, and you need to pay attention to what’s going on in those markets to get an idea of what’s going to go on in this market.

Time to Start Shorting?

As you know, commodities have been getting slaughtered as of late, so that is not going to help the Aussie anytime soon. I believe at this point it’s likely that rallies will get sold into, especially near the 0.69 level, which is an area that has been significant support previously and should now have a bit of “market memory” attached to it. In other words, I would anticipate a lot of selling pressure. At the first signs of exhaustion near that level, I will not hesitate to start shorting the Aussie.

If we break down below the bottom of the lows over the last week, it’s likely that we will continue to see the US dollar strengthen quite drastically, driving the AUD/USD pair down to the 0.67 handle. They break down below that level and could open up even more aggressive shorting, sending this market down to the 0.65 level. Ultimately, I don’t have any interest in buying this market anytime soon as the Aussie is limp, despite the fact that there was a surprise interest rate hike from the Reserve Bank of Australia just a couple of days ago.

The 50-day EMA sits just above the 0.70 level, and I think that would be the absolute “ceiling in the trend.” Because of this, the market is likely to respect that as a very difficult barrier to overcome, and I don’t think that it will happen. However, if it did, then you would have to pay close attention to this market because I think at that point, we could go to the 0.72 level. The 0.72 level is an area that currently features the 200-day EMA, so you should pay close attention to it. Ultimately, I prefer the US dollar against almost all currencies, this one included.

I’m civilly waiting for a candlestick that shows exhaustion and I will start shorting again once it occurs.

The Euro has bounced significantly from the 1.04 level during the trading session on Thursday, as the previous support level has come back in with quite a bit of “market memory” in order to stabilize a bit. At this point, the Bureau had been oversold so it does make a certain amount of sense that we would have a relief rally. Having said that, the market is more likely than not going to continue to see sellers above, so I think it’s only a matter of time before the sellers come back into the picture and punish the Euro.

Higher interest rates in the United States and a tight central bank has a lot of money flowing toward the US dollar, not the least of which is due to the fear out there. If we break down below the 1.04 level, and I do think we will eventually, that opens up the Euro for an exchange rate of 1.02 given enough time, perhaps even down to parity by the end of summer. In this environment, moves happen rather quickly, so be aware that you could see a lot of noisy behavior, but the trend is still most decisively to the downside.

The 50 Day EMA is above and tilting lower, so I think it is probably only a matter of time before that offers a certain amount of dynamic resistance that people will clamor toward, and start selling again. After that, we have the 1.08 level as a significant resistance barrier, and I think that if we were to suddenly reach that area, there’s a lot of selling between there and the 1.09 level that will have to be paid close attention to. It’s not until we break above all of that that I would consider buying this pair, despite the fact that this was a rather impressive rally. That being said, Friday can also be a bit bullish but by the time you get through the weekend, I would have to think that there will be more bad news out there that people are willing to jump on. With this, I’m civilly waiting for a candlestick that shows exhaustion and I will start shorting again once it occurs. Until then, I’m sitting on my hands and waiting for my opportunity to pick up “cheap US dollars.”

If we are at the end of the bear market, you should have plenty of time to get in.

The S&P 500 has rallied significantly during the day on Thursday as buyers continue to look for reasons to get long. Recently, we have seen yields in America show signs of falling, as traders are starting to bet that the Federal Reserve will not raise interest rates as much as once feared. At this point, it will be interesting to see how this plays out from a longer term standpoint, but right now it looks like people are willing to come in and pick up stocks.

Whether or not that ends up being something that sticks is a completely different question, but it’s worth noting that volume has been decelerating on rallies, so one has to wonder whether or not there is a whole lot of momentum behind them? The 4100 level above will offer resistance, extending to at least the 4150 level. I will be looking at the Friday close as a bit of a signal because traders are not willing to take on the risk of holding through the weekend any long positions, which tells me that this is more noise than anything else.

On the other hand, if the market closes toward the top of the range like it has during the Thursday session, then it’s possible that people have enough conviction to make this thing go higher. Above the 4150 level, we would have to challenge the 50 Day EMA which is currently sitting at 4200. After that, the 4300 level has been significant resistance as well and is backed up by the 200 Day EMA. In other words, it’s not that we can’t go higher, it’s just that is going to take a Herculean effort. If we break down below the 4000 level during the day on Friday, it’s very likely that we would go lower, perhaps reaching down to the 3800 level, which is where the bottom of the hammer from last Friday sits. I don’t believe that was the end of the bear market, so at this point in time, I look at this as a rally within the bear market. Rallies within bear markets tend to be very brutal, so none of this changes my attitude right now, but the Friday close could give us quite a bit of information worth following. If we are at the end of the bear market, you should have plenty of time to get in.

The only thing that I think you can guarantee at this point is that we are going to be very choppy, just as we have seen multiple times.

The West Texas Intermediate Crude Oil market rallied a bit during the Friday session to break above the $105 level. That being said, the market looks as if it has broken above a major downtrend line that formed the massive triangle that I have been paying close attention to. Ultimately, this is a market that looks as if it is trying to break out to the upside even further, perhaps testing the $110 level.

If we were to break above the $110 level, then the market could go looking to reach the $115 level, maybe even the $120 level. I suppose that it is worth noting that we have given back quite a bit of the gain during the session, but it is clear that crude oil continues to try everything it can to rally and break out. Just as noteworthy is that the 50-day EMA sits at the $100 level and is rising. It has acted as dynamic support recently, so that comes into the picture as well.

The market breaking down below the 50-day EMA could be an issue, and if we were to break down below there, then the market will try to reach the uptrend line of the triangle. Breaking down below there would change everything, but right now it certainly does not look as if we can have that happen anytime soon, so with that being the case I think it is only a matter of time before the market finds buyers on any dip. The biggest concern at this point is that the supply of Russian oil has been cut off, and therefore we will continue to see a bit of bullish pressure.

The only thing that I think you can guarantee at this point is that we are going to be very choppy, just as we have seen multiple times. At this juncture, the market will eventually have to make up its mind, but it certainly looks as if Friday was a serious attempt to make a move to the upside and it will more than likely continue to attract buyers. One of the main reasons why we pulled back was probably more or less due to the weekend coming and people willing to take profit heading into it.

It certainly seems as if there are a lot of buyers right here where we are right now.

The Canadian dollar shot higher in value against almost everything during the trading session on Wednesday as the market has shown itself to be very pro-Canadian in the short term. After all, the CPI numbers in several other inflation numbers came out stronger than anticipated during the trading session, and therefore people are starting to bet on the Bank of Canada becoming a bit more aggressive than what they had stated previously.

That being said, the US dollar has crashed into the 1.25 level, an area that has been supported more than once. The 1.25 level has been the bottom of a larger consolidation area, so it is very important to see this area hold. So far, it has, and one has to wonder whether or not we are going to continue to see any momentum, or if we have simply fallen back to the bottom of the same range before we turn around and show signs of buying again.

The 200 Day EMA is at the top of the candlestick and therefore it is likely that it will continue to offer a significant amount of resistance, just above the 1.26 handle. Quite frankly, this is a market that I think continues to see a lot of noisy behavior in this general vicinity, and therefore it is going to be difficult to figure out our directionality until we get yet another impulsive candlestick.

If you look at the hammer from a couple of weeks ago, breaking down below that level could signify quite a bit of selling pressure. That is near the 1.24 handle, as it is an area where we had seen the market come in and start buying again. Breaking down below that level would open up a huge move lower, perhaps even dropping the dollar down to the 1.20 area. That obviously would be a big deal, so be interesting to see how that plays out. Ultimately, if we were to turn around and take out the 1.2650 level, then that could open up the possibility of a move to the 1.29 level eventually. Ultimately, this is a market that I think continues to see a lot of choppiness, but it certainly seems as if there are a lot of buyers right here where we are right now. In general, the next day or two should tell us a lot.