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I anticipate that at the first signs of exhaustion traders will willingly jump into this market and start shorting again.
The S&P 500 was noisy during the Friday session as traders started to focus on the Independence Day holiday. It is worth noting that although there will be a certain amount of electronic trading in the futures market, the underlying index will not be operating. Because of this, liquidity will be a major issue as it is Independence Day in the United States, and quite frankly most participants won’t be involved in the futures market either. You could see rather significant jumps in the price of the futures contract in this scenario, so be cautious about trying to trade this market.
However, when you look at this chart it does tell you that at least there was an attempt to save the S&P 500 on Friday, suggesting that perhaps it is only a matter of time before we get a bit of recovery. The 3900 level above causes a bit of resistance on the way up from when I can see, but I think there’s more of a fight near the 4000 level. The 4000 level also brings in a bit of psychological resistance and the 50-day EMA. In that scenario, I think it’s going to be difficult to get above there, but if we do then I anticipate another leg up to the 4200 level, an area where we have seen quite a bit of selling pressure previously. Anything above that level could change the overall trend, but right now that seems to be unlikely.
As long as the Federal Reserve is going to tighten monetary policy, I find it difficult to think that the S&P 500 has a real shot at a decent recovery. With that in mind, I anticipate that at the first signs of exhaustion traders will willingly jump into this market and start shorting again. Quite frankly, there is a lot of negative news out there, but we have not priced in a lot of the earnings recession that is almost certainly coming down the road. Because of this, I think that the earnings season noises are going to be extraordinary this time and will continue to put a little bit of an anchor around the neck for this market. A breakdown below the lows opens up the possibility of 3500, which I do think is a realistic target over the next several weeks.
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