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This is a market that is difficult to trust because there’s no real reason for it to go higher.
- The S&P 500 Index tried to rally during the early hours on Monday, but the E-mini contract has pulled back from the crucial 4200 level.
- This is an area that we need to break above to continue the overall uptrend, and now that we have to worry about the Wednesday CPI number, this is definitely something worth paying attention to.
Keep an Eye on the CPI
By forming a shooting star, it suggests that we have further to go to the downside. Having said that, I would anticipate that there’s a certain amount of support at the 4100 level, but the CPI number, especially the Core CPI number, will have a major influence on what people expect the Federal Reserve to do next. After all, the S&P 500 and stock markets in general have nothing to do with economic reality in the United States, but solely upon monetary flow coming out of the central bank. They gave up the idea of tracking the economy 14 years ago.
If we were to break above the 4200 level, it would almost be a reaction to a number on Wednesday that is likely to be a sign that the Federal Reserve can ease up on monetary policy. I don’t expect that to happen, and I do believe that even if we did, we would see more trouble at 4300. The 4300 level is an area that’s been resistant previously and now has the 200-day EMA sitting right around it as well.
This has been a nice rally, but I think it’s getting a little long in the tooth at this point. Breaking down below the 4100 level would be the first sign that we are going to test the 4000 level. The 4000 level will bring the 50 Day EMA into the focus of traders, which has a certain amount of technical interest built into it. If we break down below there, we will probably test the lows yet again. This is a market that is difficult to trust because there’s no real reason for it to go higher. There’s no real reason to think that the Federal Reserve is going to start stepping away from tightening, and it’s a bit surprising just how much credibility the central bank has lost over the years, as Federal Reserve governors coming out and stating that they are going to continue to get aggressive simply are ignored by the market.
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