The S&P 500 has seen a couple of days that stabilized the market on both Friday and of course Monday. By hanging onto the 4500 level, this suggests that the market is trying to recover from the massive selloff as of late. Having said that, we probably need to break above the 50 day EMA in order to get overly bullish, because that would bring in a lot of technical traders as well. We have seen a nice bounce from the 4300 level, but there still are a lot of concerns when it comes to the overall economic set up, and the fact that the Federal Reserve is going to start tightening monetary policy.
If we do turn around and break down below the 200 day EMA, then I think we will test the 4300 level rather quickly, perhaps then looking towards the 4200 level. Anything underneath there could send this market much lower. On the other hand, if we break above the 4600 level, then it more than likely will have the S&P 500 racing towards the recent all-time highs. While this bearish market has been very difficult for some traders, the reality is that we are only about 300 points from the highs, just as we are about 300 points from the recent low. In other words, we are in an area where you would expect to see the market go back and forth and try to figure out what to do next.
Tightening monetary policy is typically a bad thing for markets, but we should keep in mind that the markets will do whatever it is they want to do. At this point, the market is looking like it wants to try and rally, but we have a lot of work to do in order to make that stick. The markets will remain volatile, so you need to keep your position size relatively small to begin with, but again, as I have said multiple times - you can always add as the position is moving in your favor. Be patient, because the market will more than likely continue to see a lot of concerns expressed in the form of volatility. While the VIX did drop a bit during the trading session, we are still elevated from a historical standpoint.