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The S&P 500 index had very little to say during the Wednesday session as markets simply have flattened out. The volatility is gone, and this is mainly because of vacation season. The players that are still around are focusing on what the central banks around the world are going to do, and as such stock trading might be a bit difficult over the next couple of weeks.
There are some companies out there that are doing extraordinarily well, and they are being rewarded. However, the index as a whole is a little bit overextended at these levels, and we did bump up against the top of the up trending channel recently.
The fact that we have gone sideways over the last four or five sessions instead of pulling back does suggest underlying strength. We think that as long as the Federal Reserve eases in September, that this market will indeed breakout above the 1420 level that is currently massive resistance.
In the meantime, this market could be rather choppy and directionless. Because of this, we are not interested in trying to time the market with anything resembling a short-term trade because the range has been so tight. However, if we get the pullback that we expect and perhaps even to the bottom of the channel, we are more than willing to buy high beta stocks on a supportive candle as well as S&P 500 futures. Either way, you will be taking advantage of a sudden shift in momentum as the markets become more and more positive.
In order for us to get short of the S&P 500 or even the S&P 500 futures markets, one of two things would have to happen: the first one being that the Federal Reserve does not add any liquidity or easing to its monetary policy. If the central bank ends up failing and disappointing the markets, there's a good chance of this rally fails. On the other hand, we could also see a break down below the bottom of the up trending channel. This of course is a very bearish sign as well, and we would be more than willing to start selling S&P futures let alone high beta stocks in the index itself as we would see a bit of a run from equities.