S&P 500 Forecast: Stabilizes on Monday

I believe that the market will continue to respect the 200 Day EMA, currently sitting at the 4200 level and going sideways. 

• The S&P 500 has done very little during the training session on Monday after initially gapping lower.
• The fact that we have bounced is a bit surprising, but it’s also indicative of just how many traders out there don’t believe the Federal Reserve.
• The market seems to be respecting the 4000 level in the E-mini contract right now, and the fact that we sold off so viciously on Friday seems to be something that people are willing to look past, at least in the short term.

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Massive selloffs like we had on Friday very rarely happen in a vacuum, so I think it is more likely than not that any rally that we see gets sold into. I believe that the market will continue to respect the 200 Day EMA, currently sitting at the 4200 level and going sideways. That also happens to be at the top of the candlestick from the Friday session, so it all ties in together quite nicely. A short-term rally opens the possibility of shorting at a better price, but I also need to see signs of exhaustion to get short again. After all, I don’t want to sell the market just for the sake of selling it.

Monetary Tightening Likely to Put Pressure on Markets

The alternate scenario would be that we break down below the lows of the candlestick on Monday, which should open and move down to the 3900 level. The 3900 level being broken to the downside opens the possibility of a move down to the 3700 level, which is roughly where we bottomed it previously. Furthermore, you need to be cautious about the fact that even though Wall Street is willing to ignore the Federal Reserve, quantitative tightening has just started, and there are a lot of signs of stress in other markets. Of note would be the credit markets, which are starting to show signs of an issue.

It’s not until we break above the 200 Day EMA that I look at this as a market that’s willing to take on the 4300 level again. If we were to break above there then you can make an argument for a bit of an inverted head and shoulders, which would obviously be a very bullish sign. I’m not holding my breath for that, just am keeping that in the back of my mind.

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