Remember, it is not designed to fall.
The S&P 500 fell a bit on Friday to test the 4500 level in the futures market. We have bounced from there, so that is a good sign in a market that has been sold off over the last couple of days.
At this point, we need to figure out whether or not we are going to hang on to this area and bounce or are if we are going to break down below there to reach the 50-day EMA. The 50-day EMA is currently at the 4448 level and rising. The 50-day EMA is an indicator that a lot of people pay close attention to especially in that general vicinity. The 200-day EMA sits at the 4400 level and is rising as well. The 4400 level is a massive “floor of the market”, so if we were to break down below there it would be a very negative turn of events.
Keep in mind that the S&P 500 has nothing to do with economics, so I would not worry too much about economic numbers. It is going to be about what the Federal Reserve does as far as tightening is concerned. That is the only thing Wall Street cares about at the end of the day because most big firms borrow money from the Fed to gamble in the markets. Pay attention to the Fed futures market, because it will give you an idea as to whether or not this market is going to become bullish or bearish.
If we do break down below the 4500 level, then I might be a buyer of puts options, but I would not short this market. Remember, it is not designed to fall. It is designed to go higher based upon a handful of stocks, as it is a market cap-weighted index. In other words, it is not a true measure of the underlying 500 stocks, rather it is just a handful of stocks.
If we can recapture the recent swing high, we will more than likely go to the all-time highs. Given enough time, that might be what happens, especially if the Federal Reserve blanks and suggests that it cannot hike interest rates as many times as people thought.