- The S&P 500 fell again during the trading session on Tuesday, just as we have seen during the previous session on Monday.
- The 200-Day EMA sits just above, so that is a technical barrier that a lot of people will be paying close attention to.
- Ultimately, I think this is a situation where you’ve got the S&P 500 going too far and too short of a time frame, and now we are starting to see some of that froth work off.
- The 200-Day EMA attracts a lot of attention, especially as it is sitting just above the 4000 level.
On the other hand, the 3900 level is going to offer support underneath, especially as the 50-Day EMA sits in that same general vicinity. After all, the market is between the 200-Day EMA and the 50-Day EMA indicators, so that typically means that we are about to see some type of squeeze. If there’s any week that could make that happen, this is definitely a good candidate for that.
There’s More Risk to the Downside
The week features speeches by Jerome Powell, the ADP report, the Court PCE numbers, and the jobs report on Friday out of the United States. In other words, this is a week that has enough information thrown at it that we could see a little bit of negativity, or perhaps a huge sigh of relief. It’s worth noting that the market has overdone itself as of late, as the traders on Wall Street have been doing everything, they can convince themselves that the Federal Reserve is going to step away from tightening, so therefore it’s likely that they will get the liquidity that they are looking for. Ultimately, that’s all that has pushed the market higher over the last several years has been liquidity, so now that we are entering a new monetary regime from the Federal Reserve, it’s likely that we would see stock struggle a bit more than they had in the past.
Keep in mind that the Federal Reserve is likely to keep its interest rates higher for longer than anticipated, so even if they stop raising rates, the tightening cycle will probably continue to go much longer than Wall Street is hoping for. It’s also worth noting that we are pulling back from what could be a potential longer-term downtrend line, so I think there’s more risk to the downside than the up, but obviously these announcements this week could throw things into disarray.
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