The S&P 500 fell initially during the trading session on Monday to reach towards the 4420 level, only to turn around and form a bit of a hammer. The hammer of course is a very bullish sign, and if we can break above the top of that hammer, then we could go much higher, perhaps reaching towards the 4500 level. The 4500 level course offers a significant amount of psychological resistance and importance, but at the end of the day it will only be yet another big figure.
The market has been moving in 200 point increments, and therefore I think the 4600 level is the real target. The market pulling back occasionally should offer a nice buying opportunity, especially as the uptrend line sits underneath and of course the 50 day EMA as well. The market will continue to see buyers on dips as the market continues to see lots of liquidity measures push the S&P 500 higher.
On the other hand, if we were to break down below the uptrend line and the 50 day EMA, then it is likely that we could go looking towards the 4200 level, possibly even as low as the 4000 level. That would be a simple 10% correction, which is typical in the markets. The 4000 level also is reinforced with the 200 day EMA, and therefore I think it is your “hard floor” in the market. As far as getting bearish is concerned, I would be a buyer of puts more than anything else, because I would not be shorting this market.
I would anticipate that short-term dips will continue to be bought into, especially as it does not seem like we can fall for any significant amount of time, so at this point in time it is likely that we will continue to be bullish. The market has been moving in a bit of an up trending channel, which of course is something worth paying attention to as well. Unless bond yield suddenly spike, it is more likely than not that we are going to continue to see a slow and steady grind higher as we are in the midst of August, which is a slow month, but not necessarily a negative one. At this point, I believe that we will continue much higher.
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