- The S&P 500 gapped lower to test the 3900 level, an area that previously had been resistant.
- At this point, the market is likely to continue seeing a lot of volatility in this area, and therefore I think if we were to break down below the 3900 level, then we could go down to the 50-Day EMA. After that, then we are looking at the 3800 level.
- Ultimately, I think this is a situation where we will see a lot of volatile moves, especially since we just got through an early season that was lackluster to say the least.
It’s worth noting that options expiration is on Friday, so just about anything can happen on one of the sessions, so now I think you need to be cautious about your position size over the next 24 hours. The 4000 level above could offer significant resistance, but we also have the 200-Day EMA sitting just above them to offer resistance. If we were to turn around and break down below the 3900 level, that could bring in quite a bit of selling pressure. This will be especially true if interest rates in America start rallying again.
Volatility Ahead
If we were to break down below the 3800 level, then we could go to the 3700 level, perhaps even dropping down to the 3600 level. The 3600 level is an area where we had seen a lot of support previously, so therefore it does make a certain amount of sense that we would see a bit of a flush lower if we do get that breakdown.
Ultimately, this is a situation where we have seen volatile moves more than once, and of course, a lot of what we have seen has been a reaction to the “hopium” that we have seen out there that the Federal Reserve will save everyone again. I do not think they could do so with inflation as hot as it is, so now Wall Street is setting itself up for a lot of damage. The market will continue to see a lot of noisy behavior, but I think eventually the volatility will come into the picture and slam this market to the downside. Regardless, you’re going to have to be cautious with your position size.
