S&P 500 Forecast: Index Wilts Longer-Term

Keep your position size reasonable, and be patient as you wait for your opportunities to start shorting.

The S&P 500 fell again Monday as traders around the world sold stocks. The 3850 level is trying to be broken through, and at that point, it’s likely that we would see the market go to the 3800 level. After that, then we have the 3750 level. That’s an area where we have seen buyers previously, so it most certainly would be worth paying attention to.

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Having said that, there are plenty of concerns out there when it comes to the idea of global growth, as it looks like we are heading toward a recession, perhaps even something worse. Because of this, it’s difficult to imagine that stocks are going to get any real traction, especially as the central bank in the United States continues to tighten monetary policy. By letting the balance sheet run off, that will have stocks swimming in their own pool, not living off of the cheap and free money coming from the Federal Reserve. The 50-day EMA is at the top of the overall downtrend in general, and I think it’s time to pay close attention to it as well. Furthermore, it is just below the 4000 level.

At this point, the market breaking down is more likely than not going to be the case, so I think you are fading rallies at the first signs of exhaustion, and is likely that we would see plenty of volatility, but obviously, we have much more momentum to the downside than the up.

If we were to break above the 4000 level, then it’s likely that we could go looking through the 4200 level next. The 4200 level is an area that also features not only previous resistance but also features the 200-day EMA. The market breaking above the 200-day EMA is likely to be a great defender of the downtrend. If we were to break above there, then obviously everything changes. Ultimately, I think you continue to see more downward pressure, but the occasional bounce could cause a certain amount of trouble. The market is noisy and should continue to be thought of it in those terms. Keep your position size reasonable, and be patient as you wait for your opportunities to start shorting. The 3900 level has been a short-term area of resistance as well.