I would not hang on to a position for too long as the noise has gotten quite substantial.
The S&P 500 initially pulled back a bit Friday but then turned around to break above the 3850 level. That being said, there is a significant amount of noise, and at this point, I think the 50-day EMA is going to continue to be an area that people pay close attention to. Ultimately, this is a market that I think will continue to see a lot of volatility, which makes quite a bit of sense.
The 3900 level has been difficult to break above, and I think that will continue to be the situation here. The 3700 level underneath should offer plenty of support, so I think we will continue to see this as a market that short-term traders will continue to take advantage of. After all, we are heading deep into the earnings season, so it makes quite a bit of sense that we would see a lot of chop.
The market will continue to see plenty of noise, and I think you need to be cautious with your position size. If we can break above the 50-day EMA, then it’s likely that we wll test the 4000 handle. If we can break above the 4000 handle, then it’s likely that the market could go to the 4200 level above. If we were to somehow break above the 4200 level, then it’s likely that the market would change the overall trend.
A break down below the 3700 level opens up the possibility of a drop to the 3500 level, but I don’t think that is going to happen anytime soon. It’s not that I don’t think it will happen, it’s just that it’s obvious that we are moving back and forth with interest rates, and interest rates have softened up a bit as of late. I do think that we are overdone, but that does not mean that the trend has changed quite yet, just that a correction could be coming. Because of this, I think the stock market will fall right along and break to the outside eventually, but only for a short-term rally that I will be looking to short this market when we get a bit of an exhaustion candlestick. Either way, I would not hang on to a position for too long as the noise has gotten quite substantial.