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I think at best we are probably looking at a “fade the rallies” situation.
The S&P 500 rallied on Wednesday to reach the 4000 level. However, we pulled back just a bit from this large, round, psychologically significant figure, as we continue to see a lot of volatility. Whether or not we can hang on to the gains is a completely different question, but at this point, I think we have a scenario where the markets will continue to show a lot of volatility. I believe at this point, it’s worth noting that we are trying to bounce from the bottom of the Bollinger Band indicator as well.
I do believe that any rally at this point is probably short-term in nature, so I’m looking for some sign of exhaustion to start selling. The 4100 level would be the next area of resistance, followed by the 4200 level. Underneath, I believe that the 3800 level could offer a bit of support and breaking down through that level will cause the stock market to take an absolute crashing dump.
Interest rates are starting to drop a little bit in the 10-year yields, so that does give bullish traders at least a little bit of hope, but ultimately, I think this is a scenario where you will continue to see plenty of problems plaguing the market, and plenty of fear to say the least. It’s not necessarily a market that I’m willing to get long of yet but breaking above the 4100 level is at least an attempt to change the overall trend, so it’s possible that we have the beginning of something a bit bigger. That being said, there are still a lot of concerns about inflation sticking around, and growth slowing. If that is going to be the case, there’s no real reason to think that stocks will climb over the longer term.
As Wall Street thrives on cheap money, they are essentially going to be waiting for the Federal Reserve to step in and save them. We are bouncing a bit from a 20% drop, which is typical as a lot of traders look at that as a great entry point for investments. That being said, markets can get a lot cheaper given enough time, so you need to be very cautious. I think at best we are probably looking at a “fade the rallies” situation.
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