The S&P 500, much like other indices around the world during the day on Monday, found itself going back and forth as traders have no idea what to do with themselves. There are talks between the Russians and Ukrainians, which of course is a very positive turn of events, but we have not seen a breakthrough quite yet. Because of this, you have to have quite a bit of flexibility in how you trade this market going forward.
The most important thing is going to be keeping your position size reasonably small. At any moment some type of headline could come out to disrupt whatever direction we are heading towards. These are very difficult markets to trade, and therefore it does make a certain amount of sense to stand on the sidelines and look to the longer-term trend.
More likely than not, we are going to continue to hang on every word of the Federal Reserve officials, and whether or not they sound hawkish or dovish. The market trying to price in the idea of the Fed not being able to hike rates by 50 basis points during the day, but all it would take is one errant comment from the Federal Reserve official to change that in a heartbeat. It is because of this that I am cautious and hesitant to put any money to work in this index, and I cannot help but notice that we had failed to continue going higher at the 200 day EMA, currently sitting just below the 4400 level. A break above that level would change quite a bit of attitude out there, but we would also need to have some type of fundamental or economic announcement to support the rally.
Most likely, we will continue to bounce around and show bits and pieces of hesitation but given enough time we will have to eventually break in one direction or another for a bigger move. Right now, I think we continue to chop back and forth, and you will have to be very cautious, and be willing to take profits rather quickly. We have to look at this through the prism of range-bound trading with choppy and dangerous volatility. That is not in an environment that typically produces longer-term rallies going forward.
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