The S&P 500 rallied significantly on Friday as we continue to see more of a “risk-on rally” in the market. That being said, it’s also worth noting that we are approaching an area of significant resistance, as it was previous support. I have it marked on the chart, and I believe it extends to at least the 4150 level. Even if we break above there, there are multiple other problems above.
The 50-day EMA sits at the 4200 level, and it is dropping significantly. Furthermore, I think there’s a lot of noise all the way to the 4300 level. If we did somehow break above the 4300 level, that could kick off a major trend change. However, at this point, I think it’s only a matter of time before we will see signs of exhaustion jump into the market, and then perhaps push this market lower. Remember, we are in a bearish market, and sometimes they get significant “bear market rallies” that are very punishing.
This is a market that I think has a lot to worry about, not the least of which will be the Federal Reserve. There have been rumors lately that they are not going to raise interest rates as much as people once thought, but that is pure speculation at this point. Any signs of exhaustion will more than likely be jumped upon, perhaps opening up another selling opportunity. I don’t like buying the S&P 500 quite yet, even though we have seen such a massive move to the upside.
Furthermore, you need to keep an eye on the fact that Monday will be Memorial Day in the United States, so the underlying index will not be moving. However, any bad news between now and Tuesday morning could send this market back down, so I’m just not comfortable enough to be long. I think this is a market that will continue to attract short-sellers given enough time, but I do think that we have to wait to pick our shot. Simply jumping in right away is a great way to lose a lot of money, because these bear market rallies can be quite vicious. Even though this has been a very nice rally, it’s only been three days since it started.
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