The S&P 500 did almost nothing in the early hours of Monday, as we continue to see a lot of overextension in the stock markets around the world. That being said, I think this is a scenario where traders will be looking at any pullback as a potential buying opportunity and therefore, I think you’re looking at the most obvious level underneath, which of course would be the 5,000 level. 5,000 of course is a large round number, and it does make a lot of sense that we would see traders try to defend that. There’s probably quite a bit of option action there as well, so pay attention to that. Any breakdown below that level could open up a move all the way down to the $4,850 level.
This also is where we start to see the 50 day EMA coming into the picture closer to the 4,800 level. This is a market that has been straight up in the air for the last several months, and therefore I think we have a situation where value hunting will be the only way to play this market. Keep in mind the S&P 500 is driven by just a handful of stocks. It’s not an equal weighted index, so there’s no need to trade it as such.
In this environment, I like the idea of taking advantage of value. Now that we have closed well above the 5,000 level, I think the shock of that goes away, but it’s still just a bit too overdone to simply be reckless jumping into this market with huge positions. You have to look at every negative move as a potential buying opportunity, at least until the interest rate changes, or the Fed starts to panic cut interest rates, which I don’t think they’re anywhere near that, but if and when that happens, that’s the death knell for the S&P 500. In the meantime, you’re just buying every dip, right along with everyone else, despite the fact that the market is so obviously overdone at this point. I have no interest in trying to short this market, as it has a mind of its own at the moment.
Being FXEmpire’s analyst since the early days of the website, Chris has over 20 years of experience across various markets and assets – currencies, indices, and commodities. He is a proprietary trader as well trading institutional accounts.