I anticipate that we will have another move lower just waiting to happen in this messy and very negative environment.
The S&P 500 Index itself was closed Monday, but the futures markets were open for limited off-hour trading. That being said, the futures markets gave us a little in the way of direction but when you look at the S&P 500 index itself, you can start to see that the market is trying to build a base for the upcoming Non-Farm Payroll announcement on Friday. In this scenario, the market may try to rally and reach toward the 50-day EMA.
Do not be surprised at all if that happens, and quite frankly I think that opens up a nice selling opportunity. The 50-day EMA sits right around the psychologically and structurally important 4000 level, an area that will attract a lot of attention. Even if we were to break above there, I see even more resistance at the 4200 level, where we had sold off quite drastically before. In this scenario, it’s easy to simply sit on the sidelines and wait for signs of exhaustion to jump all over.
The alternate scenario is that we will turn around and break down below the 3700 level, which opens up an attack on the 3600 level, followed by 3500 level. In that scenario, we would simply be continuing the overall negativity that we have seen in the market for some time, something that makes a lot of sense. However, a lot of participants will probably be waiting to get the Friday announcement out of the way before putting more money in the market, mainly due to the fact that the Federal Reserve now has to start paying close attention to employment figures.
Inflation still runs hot, and the Fed is expected to raise interest rates by at least 100 basis points over the next couple of meetings, and furthermore, companies around the S&P 500 are going to have to start writing down estimates, as the economy slows. If that’s going to continue to be the case, there are plenty of headwinds for this market, and I do not think that we can turn around enough to break above that 4200 level. Given enough time, I anticipate that we will have another move lower just waiting to happen in this messy and very negative environment.