The S&P 500 rallied again during the early hours on Wednesday, as it looks like we are trying to do everything we can to break above the 4600 level. If we can break above the 4600 level, then the market is likely to continue going higher, and I do think that eventually that happens. After all, this time of year is rather bullish, but I also believe that short-term buyers are trying to pick up a little bit of momentum every time we dip, and furthermore we also have the jobs number on Friday that could cause a little bit of a hiccup, but at the end of the day everybody is focused on the Federal Reserve possibly loosening monetary policy.
When you look over at the Fed Funds Rate Futures, traders believe that the Federal Reserve is going to start cutting rates in March. Whether or not that’s real remains to be seen, but the market certainly is going to react to that potential reality. If we do in fact see that happen, then risk assets should do fairly well, but I would also warn that eventually we could turn around and crash, due to the fact that if the Federal Reserve suddenly finds itself having to cut rates rather quickly, things could get ugly rather quickly as well.
From a technical analysis standpoint, it looks like the 4550 level underneath is the major support level, with 4600 level being the major resistance barrier. We have gone sideways for about 10 trading sessions after shooting straight up in the air, and therefore it’s likely that we will continue to see a lot of noisy behavior, but I think if we were to turn around and break down below the 4500 level, that could lead to significant selling down to the 4400 level. I’m not calling for that, but I do recognize that it is a potential move going forward, especially if we see interest rates spike again. That being said, the “Santa Claus rally” is something that a lot of traders just simply assume will happen, and that might be part of what we are seeing as well.
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.