Keeping positions small and being very nimble is probably going to be the best way forward.
The S&P 500 dropped down towards the 4250 level before turning around and mounting quite stringently in the futures market. Because of this, I think the market is more than likely going to continue to be difficult to hang onto, because there are so many moving pieces. Nonetheless, I still favor the downside simply due to the fact that we have a lot of moving pieces at the same time. After all, we have the Ukraine/Russia tensions that have weighed upon sentiment, but we have had so much in the way of negativity long before then to think that it is the only reason.
We are firmly below the 200 day EMA, which is a negative sign in and of itself. Having said that, the market being underneath there does attract a certain amount attention, but even if we break above the 200 day EMA, then I would anticipate a significant amount of resistance near the 4450 level, and then again at the 50 day EMA. Regardless, this is a market that I have no interest in buying anytime soon, because there so much in the way of concern out there. With this being the case, I am simply looking for signs of exhaustion in order to get short, or buy puts, depending on the way things play out.
If we do break down below the 4250 handle, I suspect that we will go looking towards the 4200 level rather quickly, and then possibly even the 4000 level. A lot of this is going to be based on inflation and slowing growth overall. Keep in mind that a lot of stocks will have incredibly high comparisons to a year ago when it comes to earnings, so that will put a bit of a drag on the index as well. This is not the environment where a lot of risk is put on, so I think it is probably only a matter of time before we see more weakness. That being said, this was a very interesting candlestick, and it does show just how volatile everything is at the moment and I think that is going to continue to be the case going forward. Keeping positions small and being very nimble is probably going to be the best way forward.
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