The S&P 500 rallied on Friday to close just below the 4600 level. This is a large, round, psychologically significant figure, but that is the only thing that keeps the market from going higher. At this point, the 4500 level should offer support, as it was significant resistance previously. I suspect that market memory will be a major factor going forward, and that is how you have to look at this chart.
We are in the midst of earnings season, it is worth noting that the earnings have been relatively strong, so it makes sense that the S&P 500 should continue to find value hunters. The 50-day EMA sits at the 4445 handle and is starting to rise. That is an indicator that I think makes sense to follow, as it is likely to see plenty of traders looking towards it. If we were to break below the 50-day EMA, then I think the 4250 handle comes into the picture as major support. Not only is it an area where we have seen a lot of buying previously, but it is also where we see the 200-day EMA racing towards. With that being the case, I think that is now your “floor in the market”, assuming that we can even get down to that area.
If we did break down below there, I would be a buyer of puts but I would not short this market because your face getting ripped off is likely the outcome of that trade. By purchasing puts, you have the ability to limit your risk, which is what you should always do when trying to short a market that is highly manipulated like the S&P 500 is. Keep in mind that the central banks are flooding markets with liquidity, and with the Federal Reserve getting involved every time somebody on Wall Street loses a few dollars, it is difficult to do anything negative in this market. I do believe that we will continue to go much higher, especially as we head into the last couple of months of the year, and a lot of hedge funds will be racing for gains that they did not have this year. Hedge funds have underperformed for quite some time, and they certainly do not want to continue to do so.
