S&P 500 Forecast: Options Expiration Creates a Noisy Environment – 19 September 2022

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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