Index Falls Late on Thursday

Ultimately, the question now is whether or not we can go lower and break below the 3800 level?

The S&P 500 has initially tried to rally a bit during the trading session on Thursday but get back gain as we are starting to focus on the CPI numbers coming out on Friday. Ultimately, the CPI numbers will give us an idea as to what the Federal Reserve is about to do, and of course, tightening monetary policy is like kryptonite for Wall Street. After all, the last 13 or 14 years have all run on liquidity and nothing else.

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We have pulled back from a major area of confluence, as the 50 Day EMA sits there, and it was the same area where we had seen previous support. This is now resistance, based upon “market memory.” Ultimately, this is a market that has been in a downtrend and I just do not see that changing anytime soon. Ultimately, this is a market that probably goes looking towards the bottom again, but we will have to wait and see whether or not we have enough momentum to actually break through. All things being equal, this is a market that has nothing positive about it, so therefore I think it’s only a matter of time before we see sellers push even harder.

On the other hand, if we were to turn around a break above the 50 Day EMA, then we will challenge the 4200 level. Above the 4200 level then opens up the possibility of challenging the 4300 level. That’s an area that has been massive resistance previously, and now the 200 Day EMA sits right there as well. Ultimately, this is a market that I think will be looking for signs of exhaustion to jump all over. Because of this, I am more than willing to fade any short-term rally at this point, especially if the CPI numbers come out hotter than anticipated.

If the CPI never misses horribly to the downside, that might be enough to get a bit of a relief rally going, but I just don’t see that being the case, and even if it does, I think it only offers us shorting opportunities at higher levels. Quite frankly, that would be my favorite trade setup, but I just don’t see it happening. Ultimately, the question now is whether or not we can go lower and break below the 3800 level?