This is a market that I think given enough time will have to pay attention to lack of liquidity, and of course a miserable earnings season that could be coming down the road.
The S&P 500 Index has broken above the downtrend channel that we have been in for a while, so it makes sense that we would continue to see this show signs of potential volatility. At this point, it looks like we are going to see a scenario where market participants are trying to push this market higher, but quite frankly it’s a hard fight to the 4000 level. Now that we have broken above the 3900 level, we are going to take a look at the 50-Day EMA.
Ultimately, this is a market that I think will continue to be very noisy, but it’s very likely that we will see an attempt to get to the 4000 handle. It’s at the 4000 handle where I think there is significant resistance due to psychology. Perhaps the market is simply trying to recover from an oversold condition, but as we are in the midst of an important earnings season, I think that you will have to deal with a lot of bit of volatility. Regardless, we are still very much in the downtrend, and unless we see the Federal Reserve suddenly change, it’s difficult to imagine that there is a longer-term rally that continues with any type of stability.
Ultimately, this is a market that I think will have to pay close attention to a lot of different things, not the least of which will be the Federal Reserve. As long as they are going to be very tight with their monetary policy, then it’s very difficult to imagine that the S&P 500 is going to have an easy time going higher. However, price action is what you need to pay attention to the most, because that is the thing that get you paid. If we break above the 4000 level, then it’s likely that we could see an attempt to get to the 4200 level. The 4200 level is where I believe the trend changes completely. Until we get above there, I have to look at rallies with suspicion, and signs of exhaustion would be jumped upon. However, this is a market that I think given enough time will have to pay attention to lack of liquidity, and of course a miserable earnings season that could be coming down the road.