To think that the market is suddenly going to change its overall attitude in the blink of an eye is asking a lot.
The S&P 500 initially rallied on Monday but gave back gains as soon as we got to the 50-day EMA. The 3950 level is an area where we have seen sellers previously, so it does make sense that we continue to see a lot of resistance in that area, and as you can see on the chart, I have a couple of levels marked that I believe are going to be important. Because of this, it’s more likely than not going to be a situation where we are looking at the potential for more of a back-and-forth type of situation.
On the other hand, if we were to break above the 3950 level, then we could threaten the 4000 level. Breaking above the 4000 level then opens up the possibility of a move to the 4200 level. Anything above the 4200 level would be a massive change in attitude and trend, but I just don’t see that happening unless the Federal Reserve does something to give the market hope of a loosening monetary policy stance. That being said, the market will continue to be very noisy and jittery, so you will have to be cautious with your position size.
If we can break down below the 3700 level, then the market could really start to fall apart. That being said, it’s very unlikely it will happen and therefore I think what we have is a situation where we just go back and forth. Whether or not we break out of this range in the short term remains to be seen, but clearly, we are paying close attention to this area so I think you should look at this much like many of the other markets right now, that you should be more range bound trading, but looking more toward the downside than anything else, as there is a lot of fear out there. To think that the market is suddenly going to change its overall attitude in the blink of an eye is asking a lot. Because of this, I’m looking at this through the prism of a market that is trying to stabilize a bit but is not ready to change its overall trend. However, if we break 4200, then we will more likely than not enter a bullish market again.