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The S&P 500 has rallied significantly after the Federal Reserve meeting on Wednesday, as traders rejoice that the interest rate hike was only 75 basis points instead of 100, which was feared. There are a lot of “what if’s” in this market, so we need to pay close attention to what happens next. After all, Jerome Powell did suggest that perhaps they will have to be somewhat data dependent when they are looking at inflation.
The size of the candlestick does give us a bit of a heads up as to the fact that there is plenty of momentum, so what I suspect is that we are going to rally a bit, and then fall right back down. Looking at this chart, I think there is a lot of noise between here and the 4200 level, which is a major area of resistance. If we were to break above the 4200 level, then it could turn the tide when it comes to the trend, opening up more of a “buy-and-hold” scenario. Ultimately, I don’t think that’s likely to be the case, but it’s always a possibility.
If we turn around a break below the 50 Day EMA, that opens up the possibility of significant selling pressure, opening up a move down to the 3800 level. If we break down below there, then it’s likely that we go even lower, perhaps down to the 3700 level. Regardless, I think what we’ve got is a situation where you will continue to see volatility, and perhaps we just got a little overdone to the downside. With that being the case, it’s likely that we will continue to see a little bit of a shot higher, followed by significant selling pressure.
It’s worth noting that the market is going to be getting GDP numbers on Thursday, and it’s likely that we will see plenty of volatility after that as well. All things being equal, this is a market that has been bullish, but given enough time will probably turn things around and show signs of negativity. I would be cautious with my position sizing, because I do not think that the volatility is going to remain low for any significant amount of time.
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