It’s probably going to continue to be a “fade the rally” type of situation.
The S&P 500 E-mini contract rallied all the way to the 3900 region during the early hours on Wednesday but has given back quite a bit of the gain. At this point, the market looks as if it is going to continue to struggle and therefore, I think we got a situation where given enough time we will probably have sellers coming back into the market.
The 50-Day EMA comes into the picture just below, so it does make quite a bit of sense that we would continue to see selling pressure overall, but I also recognize that we have a scenario where there will be plenty of volatility. Keep in mind that earnings season is going on in the United States at the same time, so that obviously has its say as well, especially as both Microsoft and Google had a horrible earnings reports during the previous session.
The Bank of Canada did raise interest rates during the day, but only 50 basis points instead of the expected 75. This has people thinking that perhaps the Federal Reserve will follow suit, and that’s why we started to see a little bit of bullish pressure during the day. However, you can see just how quickly we gave it up, so with that being the case it’s likely that we continue to see more of a pullback than anything else. I think ultimately this is a situation where you have plenty of noisy behavior, and that will almost certainly continue to make rallies difficult to hang onto.
The market will continue to see plenty of downward pressure, due to the fact that there is so much uncertainty out there.That being said, if we do break above the 3900 level, then it opens up the possibility of a move toward the 4000 handle.I don’t think that’s easy to happen, but it is something that you can keep in mind.
I suspect that sooner or later we will see the market try to reach the lows again, and I think we have more exhaustion coming into the market, and therefore I think it’s probably going to continue to be a “fade the rally” type of situation, but that doesn’t necessarily mean that we won’t have the occasional bear market rally like we just went through.