The S&P 500 has been all over the place during the trading session on Friday again, as we continue to see a lot of choppiness. This does make a certain amount of sense considering that the market had gotten up to this level rather quickly, and therefore probably needs to work off some of the excess bullish behavior. Because of this, I anticipate that the market is probably going to be range bound for a while, and therefore is not necessarily something that I look to take a big position in.
On a pullback, I think there are plenty of value hunters out there that would get involved, especially considering that the market has obviously shown itself to be bullish longer-term, and then of course also has the added bonus of it being the end of the year, and the so-called “Santa Claus rally” comes into the picture. I suspect it is probably only a matter of time before we see nice strength, and therefore I like the idea of picking up any drops that we get. The 4500 level is the beginning of significant support, but I also see quite a bit of support at the 4400 level as well, and then again at the 50-Day EMA, which sits right above there.
All things being equal, I do think that the stock market rally is overdone but let’s face it, the reality is that momentum runs the market more than anything else. Well, that and liquidity of course. With this being the case, if rates continue to drop, it’s very likely that we will continue to see buyers jump into the stock market and try to take advantage of that.
Ultimately, this is a situation where there’s no real reason to short this market, despite the fact that it is clearly overbought at the moment. With that in mind, I’m simply looking for value and taking advantage of it when I can get it. On the upside, the 4600 level looms large as a potential resistance barrier. If we can break that, the market could really start to take off, but at this point we need to at least kill time and work off froth first.
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.