The S&P 500 pulled back a bit during the trading session on Tuesday, as we continue to see a lot of noisy behavior. Quite frankly, we are a bit overextended at this point so I would anticipate that this is a market that needs to pullback in order to find some type of value. After all, chasing the trade is a great way to lose money, and there are a lot of things to consider in the longer term out there.
That being said, the “Santa Claus rally” is a very real phenomenon, and with that being the case the market is likely to continue seeing buying in this market as traders jump and chase performance. That doesn’t necessarily mean that we need to get overly aggressive, just that the market is probably more or less going to be a “buy on the dips” scenario.
Because of this, I’ll be paying close attention to the 4500 level, and then of course the 50-Day EMA underneath there. The 50-Day EMA is an indicator that I think a lot of people will pay close attention to, and therefore I think it could be a bit of a “floor in the market.” I’d be surprised if we broke down below there, but if we did, there is still plenty of support near the 4400 level. All things being equal, I do think that this is a market that you will have trouble shorting between now and the end of the year, despite the fact that I have a lot of reservations about how the US economy is performing.
Remember, Wall Street only cares about liquidity, and not so much about how the actual world is functioning. With this, I believe that buyers will continue to return to this market regardless, so even if we do start falling, I’m not willing to short the market, I would simply wait for an opportunity to pick up “cheap stocks”, which if you remember, the “Magnificent 7” make up about 28% of the S&P 500 now. This thing trades like an ETF, because quite frankly it is an ETF at this point.
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.