The S&P 500 initially tried to rally during the session on Thursday, but also continues to see a lot of resistance just above and therefore I think you continue to see a lot of noisy behavior. If we were to break above the top of the candlestick for the trading session on Tuesday, that would be a very bullish sign. That being said, I think the market desperately needs this sideways action or possibly even a bit of a pullback.
If the market were to pull back from here, then the 4500 level underneath is a support level. It’s a large, round, psychologically significant figure, and an area where the market will probably be looking to pick up a bit of value. If we were to break down below the 4500 level, then it’s possible that we could go down to the 50-Day EMA, but at this point I think it would take something rather significant to make that happen.
Ultimately, the market is likely to see a lot of volatility, and a lot of people willing to jump in and pick up value if and when it appears. Furthermore, a lot of people are looking at the potential “Santa Claus rally” that comes into the picture, as the situation at the end of the year typically means that people are trying to chase performance. It may have come a little early this year, but I still think there is a significant amount of buyers underneath waiting to get involved.
As interest rates in the 10 year yield continue to drop, it does make a certain amount of sense that stocks get a boost, but at this point we have come so far in such a short amount of time that is difficult to get overly bullish at this point. Quite frankly, smart money is probably dumping stocks at the moment, allowing retail traders to pick them up so that they can collect their profit. In other words, I think a pullback is somewhat imminent, and definitely needed. That could open a buying opportunity several levels below, but we will have to wait in see how that plays out.
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.