S&P 500 Forecast: Options Expiration Creates a Noisy Environment – 19 September 2022
There is a Federal Reserve interest rate hike coming next week, and somebody will probably try to make something out of the statement that is not there, but I look at that relief rally as an opportunity to get short yet again.
Stock markets are crashing again
FedEx absolutely blew up any illusions of strength after hours on Thursday, suggesting that the world was going to go into a global recession. It’s a bit of a surprise that it was a surprise, but here we are. I think you have a situation where you are feeding rallies, but it’s also worth pointing out that $3.2 trillion worth of options were expiring on the SPY ETF alone on Friday, so it would create a little bit of a noisy environment. Nonetheless, this is a market that has broken through support, and we are well below the 3900 level.
I believe that we are going to go looking toward the 3800 level, and then possibly even lower. If we break down below the 3800 level, I don’t think that there is a whole lot out there to keep this market from testing the lows. In fact, I think most traders think that is a foregone conclusion. I look at rallies as an opportunity to start shorting again, at least on short-term movement. Remember, when a market breaks down like this, you don’t necessarily short and hold, you short the market, collect profits, let it bounce again, and then short it again.
The 50-Day EMA is starting to race towards the 4000 level, and that should offer a bit of a short-term ceiling assuming that we can even get that far. I don’t think we do, and quite frankly there’s nothing out there that screams that we should be rallying. There is a Federal Reserve interest rate hike coming next week, and somebody will probably try to make something out of the statement that is not there, but I look at that relief rally as an opportunity to get short yet again. The Federal Reserve is going to keep applying pressure until something breaks.
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