The S&P 500 rallied again during the trading session on Wednesday, as it looks like we are heading toward the top of the overall market highs and are getting close to breaking out completely. All things being equal, this is a market that has gotten way ahead of itself, so it is a bit difficult to get overly aggressive. After all, a lot of gains have already been recognized, and even though we are in that time a year where people are looking to find some type of performance, the reality is that markets can only go parabolic for so long. We have gained well over 11% in just a few weeks, which is extraordinarily dangerous.
Underneath, the 4500 level should offer a significant amount of support, and I do think that given enough time there would be people interested in buying in that area. However, it looks like it’s a full-blown “melt up” at the end of the year, as Wall Street tends to engage in a lot of “groupthink.” You cannot fight this rally, and if you are nimble enough, you could put on a position to the upside, but right now I think you are simply going to have to sit on your hands and wait for some type of value to present its own. After all, the market is expensive at this point, and even though we have seen quite a bit of momentum picking up, the reality is that the situation is going to be precarious at best, and you are going to have to pay close attention to the 10 year yield.
The market has shown itself to be pricing in the idea of the Federal Reserve stepping away from tight monetary policy, and as long as that’s the case, it will help propel stocks, but sooner or later we need some type of profit taking. I anticipate that the market is going to continue to be one that causes extreme pain to the upside, and therefore shorting is not advisable under any circumstances at this point. Ultimately, this is a one-way trade, the question is whether or not you can find value?
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.