The S&P 500 rallied a bit on Friday as we continue to see a bit of a relief rally. The market looks as if it is trying to reach the 3900 level, an area that previously had been supported. It’s possible that we may see a bit of selling pressure just above, but even if we do break above there, the 4000 level of course is an area that could come into the picture. The 50-day EMA is sitting just above there, and it is starting to reach down there as well. All things being equal, the large, round, psychological significance of 4000 is also an area that could be a bit of a problem.
The S&P 500 has been falling due to the Federal Reserve tightening monetary policy, and of course, that puts a lot of downward pressure on stocks as it builds up the “risk-free return rate”, as bonds are considered to be “risk-free.” Ultimately, this is a market that has a ways to go I think in the short term, but there is a huge amount of concern out there when it comes to the economy, inflation, and of course that monetary tightening policy. In other words, although we are getting a ripping bear market rally, the reality is that these happen from time to time, and then we continue lower.
Nothing has fundamentally changed to make the idea of the market rally for a longer-term move. Ultimately, this is a market that will continue to see a lot of headwinds, especially considering that they will have to write down earnings estimates, as the economy is changing quite rapidly with the consumer confidence deteriorating rapidly.
The Federal Reserve is hell-bent on tightening into this cycle of slowdown, so it does make a certain amount of sense that we would see the stock market price in even tougher conditions eventually. It’s a bit difficult to measure at times, but the attitude and narrative on Wall Street continue to suggest that in the short term there will be plenty of hope, but in the longer term the math does not work out. Unless you have the ability to get in and get out really quickly, the best thing you can do is wait for another shorting opportunity, one that will probably come in the next couple of trading sessions.
